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UNITED STATES OF AMERICA. 



PRINCIPLES 



Commercial Law 



A TREATISE 

oennum, 



FOR THE USE OF 




Students in Business Colleges, and Others: 



richard tf thornton, 
Law Professor in the University of Oregon. 



SECOND EDITION. 



Published by A. P. Armstrong, Portland, Oregon. 

1893- 



sipy 



|S?3 



Entered according to act of Congress in the year 1893, by 

RICHARD H. THORNTON, 

in the office of the Librarian of Congress at Washington. 



All rights reserved. 



SCHWAB BROS. PRINTING AND LITHO. CO. 



Preface to First Edition. 

£UHIS work is offered to the public in the belief that there is 
1 a demand for a book on commercial law which can be read 
and understood by the average student. Newness of 7nethod 
has been attempted, rather than of matter ; and it is believed 
that the well recognized truths of the laws of commerce have 
been here stated in such shape as both to interest and instruct. 
This treatise claims the advantage of relieving a technical 
subject of dryness ; of rendering the study of commercial 
law interesting, without trying to make every man his own 
lawyer. 



Preface to Second Edition. 

£TCHE success which has attended the first issue of this manual- 
J- induces the author to put forth a new edition, with such 
changes as further experience has suggested. The purpose of 
the work is to state the first principles of commercial law in a 
plain, intelligible and attractive manner. The student, in 
rightly using it, will gain an enlarged and correct notion of 
those transactions in which he expects to be employed ; while 
the business man or woman, pursuing a similar plan, will come 
into possession of a large store of practical knowledge, which 
others acquire only in fragments, and usually at the cost of a 
law suit, or heavy financial loss. In this age, no one who is 
or may be engaged in business of any kind can afford to be 
ignorant of his legal rights and responsibilities. 



THE 

Elementary Principles 

OF 

COMMERCIAL LAW. 
CHAPTER I. 



CONCERNING AGREEMENTS. 



Business transactions consist chiefly of buying and selling, 
borrowing and lending, employing and serving, carrying mer- 
chandise and paying for the carriage of it. They include, 
also, all matters of detail which are incidental to such deal- 
ings ; as, for instance, the statement of an account, the mak- 
ing of a note, the acceptance of a bill, the signing of a 
receipt, the cancellation of a debt. The main transactions of 
commerce consist of what the law calls agreements. The 
incidental transactions are connected with those agreements, 
and are necessary to carry them out. This being the case, it 
follows that a discussion of the true nature of an agreement 
is a proper introduction to the study of commercial law. 



6 AGREEMENTS. 

In a legal sense, the word agreement means a concluded 
bargain. There is a popular saying that it takes two to make 
a bargain, which suggests the first principle of a valid and 
binding agreement. There must be a correct understanding, 
by each party, concerning that which is bargained for or 
about. The persons who make the bargain must intend the 
same thing in the same sense. In the language of the law, 
their minds must come together, else there can be no agreement 
between them. If there has been an honest misunderstand- 
ing, on either side, as to any essential part of the bargain, 
there is no agreement, and neither party is bound. 

* * * A certain man had a gun, which another man wanted to buy. 
The owner asked thirty-five dollars for it ; but, in stating the price, he 
spoke indistinctly, and the intending purchaser thought he said twenty-five 
dollars. When the time came to deliver and pay for the gun, the parties 
disputed about the price. Each honestly had in mind a different amount, 
and the sale was not made. In this case, inasmuch as the parties had not 
understood the matter under consideration in the same manner, there was 
never any real agreement between them. Their minds had not met. 
They had not understood the same thing in the same sense. Consequently, 
the person who offered to sell the gun was not bound to sell it, nor was 
the other bound to buy it. 

Of course, a man is never allowed to escape the consequenc- 
es of his bargain, by merely pretending that he misunderstood 
the terms of it. It rarely happens that there is room for any 
serious doubt on this point; but, if either party to a pro- 
posed bargain can show that there was a substantial misunder- 
standing, which did not arise from his own foolishness or dis- 
honesty, he can properly deny that any agreement exists. 

The notion of a concluded bargain implies that the trans- 
action amounts to more than a mere offer. There must be a 



AGREEMENTS. 7 

definite proposal, followed by an unqualified acceptance. If, 
instead of this, the proposal is followed by a counter-proposal, 
the latter must be accepted by the party who made the first 
proposal, or there is no agreement. If the proposal is ac- 
cepted with a modification, the modification has to be accepted 
by the person who made the former proposal, else there is no 
agreement. 

* * * Two persons were negotiating for the sale and purchase of a 
wagon. The owner of it said to the other, "You may have the wagon for 
forty dollars." The other replied, "I will take it at that price, provided 
you will deliver it at my wagon shed on my farm." Up to this point, 
there was no agreement, because the bargain had not been concluded. 
The first man said, " Well, that would cost me five dollars, and T cannot 
afford to do it ; but I will divide the difference with you, and deliver the 
wagon, as you propose, for forty-two dollars and fifty cents." The pur- 
chaser consented to this, and at that moment the agreement was complete ; 
the bargain was concluded. Neither party then had the right to withdraw 
from it, without the consent of the other. The seller was bound to deliver 
the wagon, and the buyer to receive and pay for it. 

It is further necessary, to fulfill the legal notion of a con- 
cluded bargain, that the transaction shall have the character 
of mutuality. This means that it must not be one-sided. If 
it is so, it is not an "agreement" in the sense in which this 
word is used in law. In other words, if all the benefit is to 
go to one party, and the other is to get nothing, the transac- 
tion amounts to a mere promise ; and a person who makes 
such a promise is at liberty, so far as the law is concerned, to 
change his mind and refuse to keep it. If, however, he should 
fulfill the promise, and put the other party in actual possession 
of the thing promised, he cannot then change his mind and 
take it back. 



8 AGREEMENTS. 

* * * If I tell you that I will make you a present of a pair of new 
shoes on Tuesday of next week, and you agree to accept them, I am not 
obliged to provide you with the shoes, however wrong it may be on my 
part to make the promise, and then break it ; but, if I once put you in 
possession of the shoes, I can neither take them back without your con- 
sent, nor charge you with the value of them. 

Note the difference between the last illustration given, and 
that in which the two men were bargaining for the sale and 
purchase of a gun. In che case of the gun, there was a mis- 
understanding for which no one was responsible, so neither 
man was bound to stand by his offer. In the last illustration, 
there was a thorough mutual understanding ; but the bargain 
was entirely one-sided. In the language of the law, the prom- 
ise I made, to give you a pair of shoes, was "without con- 
sideration." This word consideration means a recompense or 
equivalent. If the bargain had been that you should copy a 
letter for me on the typewriter, and that I should furnish you 
a pair of new shoes for this service, there would have been a 
"consideration" for my promise. In that case, if you copied 
the letter, and I then declined to supply the shoes, you 
would have a cause of action against me. 

It is not necessary that the values should be equal, to make 
the agreement binding. In the last case, a pair of new shoes 
might be reasonably worth more than the work on the type- 
writer ; but I would not be permitted to object on that 
account. The rule would be the same, though the discrep- 
ancy in the values were much more striking. If a man has 
made a bargain with his eyes open, he cannot lawfully decline 
to perform his part, on the ground that he thinks it bad for 
himself. If he made it under compulsion, or if the other 
party deceived him into making it, the case would be different. 



AGREEMENTS. 1) 

Until the bargain is concluded, he who makes the offer is at 
liberty to recall it. Before that point is reached, there is no 
agreement, no meeting of the minds, no legal obligation on 
either side. 

* *' * At an auction sale, the drop of the hammer, or the word 
" gone," or "sold," used by the auctioneer, marks the point of time when 
the bargain is concluded. Mr. M. had bid $75 on an oil painting, and 
his bid was the highest. The auctioneer tried to get further bids, and at 
length said, " going to Mr. M., going," — but before he pronounced the 
word "gone," Mr. M. said, " I withdraw my bid." This he had a right 
to do, and he could not be compelled to take the painting. 

Again, the rendering of a gratuitous service is not in the 
nature of a bargain, and no charge for such service can be 
properly made. The person accepting it may pay of his own 
accord ; and, if he voluntarily promises to pay, he can then 
be made to do so, but not otherwise. 

* * * (1) A storekeeper was away from home. During his absence, 
a fire broke out close to his place of business. Some of his neighbors 
removed his goods, and saved them from destruction. They could not, 
in an action at law, recover the value of their services ; but, if the mer- 
chant afterwards stated that he would compensate them, then a reasonable 
recompense could be enforced. 

* * * (2) A. owes his tailor $45. Of his own accord, B. goes to the 
tailor and pays the bill. B. cannot, in the absence of a promise by A., 
recover the $45 from him. 

The minds of the parties, as we have already seen, must 
come together, or there is no agreement; and, when their 
minds do come together, the bargain is concluded. That 
point being reached, neither party has a right to withdraw, or 
to change the terms of the agreement in the slightest manner, 
without the consent of the other. This being the case, it is 



10 AGREEMENTS. 

desirable that we should be able to fix the exact moment at 
which the minds meet. When the parties talk with each other 
face to face, there is usually little difficulty in ascertaining 
this point of time, because we have only to ask when the offer 
was accepted; or, if there have been proposals and counter- 
proposals, when the final offer was accepted. 

When an offer is made and accepted by mail, a curious 
question presents itself. Do the minds meet when the person 
addressed signs his name to the letter in which he accepts the 
offer, or when he mails it, or when the other receives it? This 
problem has received much attention, and it has been decided 
that the bargain is concluded when the letter accepting the 
offer is deposited in the postoffice. Thus, in a well known 
case, an insurance company proposed to insure a house, on 
certain terms. The owner mailed a letter to the company, in 
which he accepted the offer. The house was burned before 
the company received the letter in the regular course of the 
mail ; and the Supreme Court of the United States, which 
heard the case, held that the bargain was complete, and that 
the company must bear the loss. The person receiving an 
offer by mail is not obliged to reply immediately, but has a 
reasonable time to consider the matter ; although, until he 
mails his reply, or otherwise signifies his acceptance of the 
offer, the person making the offer may withdraw it. Some- 
times, the offer is accompanied with a condition that it must 
be accepted, if at all, within a certain period; and then, of 
course, the condition must be observed. There have been 
instances in which one man has written to another, proposing 
a certain bargain, and saying that he would treat the offer as 



AGREEMENTS. 11 

accepted, unless he received a reply in so many days; but 
silence, in such a case, is not sufficient to express consent. 
Offers relating to business should never be framed in this 
manner. 

Any person may enter into a binding agreement, who is 
not under some definite legal disability. We need not here 
raise the question as to whether a lunatic can be a party to a 
contract. The law in relation to minors is of much greater 
importance. A minor is a person who has not attained full 
age. The period of full age, in most of our states, is twenty- 
one years, in case of a man, and eighteen years, in case of a 
woman. Great caution is desirable in commercial dealings 
with a minor. In the eye of the law, he has not sufficient 
discretion to engage in mercantile dealings, and is liable to 
become the victim of persons who know more than he does. 
On this account, the law affords him a large measure of pro- 
tection. It is not safe to lend money to a minor, because, if 
he squanders it, the lender cannot recover at law. Neither is 
it safe to supply him with goods on credit, because, unless 
these things are necessary for his maintenance, he cannot be 
made to pay for them. If a young man of nineteen or twenty 
were keeping a store, and wanted to get a supply of goods on 
credit, the only safe plan open to the seller would be to induce 
some responsible person either to become the buyer, or to 
guarantee the payment of the account. 

Generally speaking, it is not entirely safe to make mercan- 
tile agreements with married women, and such dealings with 
them ought to be conducted with great care ; but married 
women, whose husbands have deserted them, are allowed to 



12 AGREEMENTS. 

carry on business on their own account. As to these matters, 
the local statutes must be consulted, and the facts of each 
case considered. 

Where an employer is represented by a clerk or agent, an 
agreement made in his name by the clerk or agent, within the 
scope of his employment, will bind the employer, because he 
has engaged the clerk or agent for the very purpose of repre- 
senting him. 

* ' * * A clerk in a furniture store has instructions to sell a certain 
bedstead for $50. He makes a mistake, and sells it to a customer for $40. 
The storekeeper cannot charge the customer with anything more than $40. 
If the transaction displeases him, he must settle the difficulty with his 
clerk. If the clerk had fraudulently agreed with the purchaser to let down 
the price, and the storekeeper could prove it, then he could charge the pur- 
chaser with the full value. If the price named by the clerk were outrage- 
ously low, as $10 instead of $50, this might be enough to put the purchaser 
on his guard, by suggesting the existence of a mistake; and, in such a 
case as this, the storekeeper could decline to deliver the goods; or, if they 
had been delivered, he could demand them again, unless the purchaser 
would agree to pay a reasonable price. 

The question arises, whether a mercantile agreement ought 
to be in writing, and whether a writing is required by law. 
There are only a few instances in which the law positively 
requires any writing; and of these, only four need be noticed, 
because the others arise out of peculiar circumstances. A 
writing is positively required (1) in case of agreements which 
are not to be fully performed within a year from the time of 
making them ; (2) in case of bargains wholly unperformed, for 
the sale of anything for $50 *or more ; (3) in case of agree- 
ments for the sale of land, or for leases^exceeding one year; 
(4) in case of the promise of one man to become responsible 



AGREEMENTS. 13 

for the debt of another. These provisions originated in an 
English statute, called The Statute of Frauds, which was 
passed more than two hundred years ago. They have been 
found so useful that this statute has been re-enacted through- 
out the United States, and in the English colonies. As to 
the amount of $50, and the period of one year, marked here 
with a star *, there may be local differences ; but the general 
purpose of this great statute is the same everywhere. 

If people make agreements of the kinds now specified, 
without any writing, and keep them, it is plain that all will 
come out right ; but a man who makes such bargains without 
any writing is at liberty, so far as the law is concerned, to 
disregard them if he chooses. 

* * * (1) You meet a farmer at the cross-roads, and agree to buy 
his horse for $55, but no memorandum is signed. Next day, you go to his 
house and offer him the money ; but he says he has changed his mind, and 
you shall not have the horse at that price. If you now bring an action 
against him, he can defeat you by simply denying the existence of any 
writing concerning the matter. Had the agreed price been $49, the case 
would have been on your side. 

As to this question of sales to the value of $50 and more, 
there are methods of dispensing with a writing, which we will 
discuss in a subsequent chapter. It is enough at present to 
remember this as one of the four cases in which the law 
usually requires a writing ; and the writing must be subscribed 
or signed by the party who is to be charged by means of it, 
or by his agent or clerk. 

* * * (2). A minor was keeping a store, and wanted to procure a 
supply of merchandise on credit. The seller, however, declined to deal 
with him, except for cash, and so the parties were at a dead-lock. In 



14 AGREEMENTS. 

order to remove the difficulty, the young man's uncle said to the wholesale 
dealer, "If my nephew does not pay you for these goods, I will pay you 
myself; let him have them." There was no memorandum in writing, but 
the goods were delivered in consequence of the promise. The nephew, 
unfortunately, became insolvent; and the uncle, on being requested to pay, 
said he would not do so. The seller of the goods went to his lawyer, to 
instruct him to bring an action against the uncle ; but he soon discovered 
that such an action could not be successfully maintained, because the 
uncle had signed no writing. 

Of course, it was not right of the farmer to cancel his 
bargain as to the horse ; and it was grossly dishonest on the 
part of the uncle of the minor to promise, and then to refuse 
fulfillment of his promise ; but the experience of men has 
proved the wisdom of the law on this point. A writing is 
required to protect men from the effects of haste, forgetful- 
ness, imposition and falsehood ; and the general benefit of the 
enactment far outweighs any occasional inconvenience which 
may result from it. 

It is not necessary, even in concerns of great importance, 
to draw up formal articles of agreement. The Statute of 
Frauds, where it requires a writing, does not say what shape 
the writing must assume. Transactions which involve large 
sums of money are frequently negotiated by letters and tele- 
grams \ but, when the arrangement in question involves many- 
points of detail which may be productive of dispute, the reg- 
ular and best plan is to prepare articles of agreement. 

Although there are numerous cases, of various kinds, in 
which the law does not require a writing, yet the absence of 
any writing may be a fruitful source of danger. Human 
memory is treacherous, and a memorandum serves to make 
the agreement certain, and tends to prevent misunderstanding. 



AGREEMENTS. 15 

The safe rule is this : Whenever a bargain is not to be 
entirely performed at once, and its consequences are important \~ 
let it be reduced to writing ; and, if it involve such details as 
may give rise to differences of opinion, have it reduced to writ- 
in°; even though it is to be performed without much delay. The 
observance of this rule may save a great deal of trouble. 

* * * A merchant employed a bricklayer to build a brick wall for 
him. Nothing was expressed in writing. The work went on, and there 
was no dispute as to the height and length and width of the wall, but 
there w T as a very annoying dispute about the quality of the brick, and the time 
in which the work should be done. The wall was finally completed, but 
each party thought the other had treated him unfairly, and neither was 
satisfied. As a result of this, the merchant will not employ the bricklayer 
again, and the bricklayer will buy no more goods from the merchant. An 
agreement, properly drawn up, would have prevented all this vexation and 
ill will. The case was not one of those in which a writing is positively 
required; it did not involve a sale of goods, but only so much work. It is 
clear, however, that the parties would have acted wisely, if they had 
expressed their bargain in writing. 

Articles of agreement ought to embody the result of all 
previous negotiations on the subject-matter. There may have 
been offers, and counter-offers, and modifications of proposals 
which were already made ; but the written agreement is 
intended to express the final intention of the parties, and the 
law will so regard it. In case of controversy, all the circum- 
stances may be described, for the purpose of throwing light 
on the meaning of the document ; but evidence will not be 
admitted to prove that the parties meant something different 
from what they wrote down. Therefore, it is very desirable 
to draw up the agreement accurately. It ought to be partic- 
ularly clear as to the names of persons and places, the time at 



16 AGREEMENTS. 

which anything is to be done, the quantity and quality of 
goods or materials to be supplied, the price to be paid, and 
the time and mode of payment. 

When a bargain is made with reference to any special line 
of business, and there is a well-known custom of trade which 
prevails in that business, it is not necessary to mention that 
custom in the agreement, because it will be understood that 
the bargain was made with reference to the custom. There 
may sometimes be an advantage in mentioning it, so as to 
prevent any dispute ; but the custom, if it be a universal one 
in the particular trade, or one well recognized in the place 
where the bargain occurs, is a part of the contract, and the 
parties can only set it aside by using words which positively 
exclude it. 

* * * It is customary in the barley trade to deliver barley in sacks. 
A certain purchaser bargained for fifty thousand bushels of barley. When 
the time came for him to receive and pay for it, the seller wanted to deliver 
it loose. The purchaser said he must have it in sacks ; the seller replied, 
in effect, that the agreement said nothing about sacks, and therefore did 
not call for sacks. This controversy went to the Supreme Court of the 
United States, and it was there decided that the seller was bound to supply 
the barley in sacks. 

Inasmuch as the custom existed, the parties should have 
stated in their agreement that this invoice of barley was to be 
delivered loose, if such was their intention. As a matter of 
fact, the seller, in the case quoted, was trying to take an 
unfair advantage of the buyer, which the law did not allow. 

It is not a very hard matter to draw up ordinary articles of 
agreement, if one knows exactly what the bargain is, and 
observes the rules already laid down. The great thing is to 



AGREEMENTS. 17 

say precisely and fully what is meant. Persons who are not 
lawyers should avoid the use of legal phrases. A country 
schoolmaster in England once prepared a will for an old lady. 
In course of time, the will had to be laid before a very 
eminent judge. He said that the schoolmaster had made the 
old lady use " all the drag-net words of conveyancing" — 
such was his phrase — " without understanding any of them." 
In writing an agreement, it is usually better to speak of per- 
sons by their names than to call them "the said party of the 
first part," and "the said party of the second part." 

It is a wise precaution to make and sign as many copies of 
the agreement as there are parties to it, so that each one may 
keep a copy. Thus, if there are two parties, the agreement 
should be "executed in duplicate;" if three, "in triplicate," 
and so on. 

It is not legally necessary that an agreement should be 
either sealed or witnessed. The only documents which 
require seals and witnesses are deeds and wills. It may give 
more apparent importance to an agreement, to have it 
witnessed. If one party dies, proof of the agreement may be 
thus made easier. In an extreme case, the existence of wit- 
nesses may prevent a party who signed the document from 
denying his own signature ; but the legal effect of the writing 
is unaltered by the attestation. The seal does make some 
difference, because it prolongs the period during which an 
action at law can be brought, if the agreement is broken. 
As a general rule, the statutes provide that an action can be 
brought on an unsealed instrument within six years from the 
date of the breach, while the period is ten years, or, in some 



18 AGREEMENTS. 

states, more, in case of a sealed document. By "the date of 
breach," is meant the time when the agreement is broken, 
and when the party who breaks it becomes liable to an action. 
Most people, if they bring an action at all, do so without any 
prolonged delay ; so that this question of time, as to the six or 
the ten years, is not very frequently raised. 

In most cases, the law cannot make men perform their 
agreements literally. This is particularly true with regard to 
commercial transactions. The ordinary remedy of the injured 
party is to bring an action, and recover damages. The usual 
way of ascertaining the amount of damages is to submit the 
matter to the verdict of a jury, though now and then parties 
can be induced to save a lawsuit, and refer the controversy to 
arbitration. There are some peculiar cases, in which a 
court of equity will make men do what they have agreed to do; 
but these instances, involving what is known as "specific per- 
formance," do not relate to ordinary mercantile contracts. 
The usual method of securing the performance of an agree- 
ment is by the execution of a bond ; and this -brings us to the 
topic of the next chapter. 



CHAPTER II 



COXCEKl^IXG BONDS. 



A bond is a writing under seal, containing a promise to pay 
money. It is called a bond, because it binds the maker of it. 
He is styled in law the obligor; and the person in whose favor 
it is made is styled the obligee. 

The way in which a bond binds the maker is this : he 
enters into an agreement of some kind, and executes a bond 
in which he undertakes to pay a certain sum of money, in case 
he fails to perform his part of the agreement. Let us examine 
the working of this instrument. 

* * * Adam Stuart, of Washington county, wants a well dug on his 
farm, and John Day agrees to dig it. (This is such an agreement as ought 
to be expressed in writing, though the law does not require it.) Day is 
called off on a more important job, and neglects this one altogether. Stuart 
waits what he considers a reasonable length of time, and then determines 
that he will take legal proceedings against Day, if he can, on account of 
his breach of contract. With this intention, he goes to consult his lawyer, 
and relates the facts in the case. After hearing what Stuart has to tell 
him, the lawyer says : "Well, you have a cause of action against Day, it 
it true ; but you are not likely to get much damages, and it will probably 
cost you more to sue him than the thing is worth." Stuart thinks the mat- 
ter over, and concludes not to go to law. If he had made Day give a bond, 
the well would, in all likelihood, have been dug; but how ought such a 
bond to be expressed? 

The straight-forward way would perhaps be this : Unless I, 
John Day, dig a well of such a kind and size, in such a place, 



20 BONDS. 

by such a time, for Adam Stuart, I will pay Adam Stuart 
Three Hundred Dollars. John Day. (seal.) At such a 
date, in such a place." 

There is no reason to suppose that a bond like this would 
not be valid ; but bonds are not thus written. The form 
which has been used for several centuries first states an indebt- 
edness, and afterwards a condition upon which the indebted- 
ness is to be discharged. The form, in this particular case, 
would run as follows : 

''Know all Men by These Presents, that I, John Day, am 
held and firmly bound unto Adam Stuart, of Washington 

county, State of , in the sum of Three Hundred Dollars 

($300) to be paid to the said Adam Stuart, his executors, 
administrators, or assigns : for the payment of which I bind 
my heirs, executors, and administrators firmly by these pres- 
ents. 

Now the condition of this obligation is such, that if the said 
John Day shall, in a workman-like manner, dig a well four 
feet in diameter, and of a sufficient depth for the purpose of 
drawing water, at a place now marked out for the same near 
the north-east corner of the farm of said Adam Stuart, before 
the twenty-sixth day of June, A. D. 189.-, according to an 
agreement made by them in writing on the fourth day of Jan- 
uary, A. D. 189--, then this obligation shall be void : other- 
wise, it shall remain in full force. 

Witness my hand and seal, at , , 

on the eighteenth day of , 189 __. 

Executed in the presence of ~\ JOHN DAY, [seal.] 
Thomas Graham, l 

Paul Renwick. ) 



BONDS. 21 

The mentioning of executors and administrators means that 
the bond is to hold good against the estate of John Day, and 
in favor of the estate of Adam Stuart, should either or both of 
them die; but this result would follow, even if these words 
were left out. An executor is a person who is named in a will, 
to settle up the estate of the person who makes the will, to 
pay his debts, and distribute his property. An administrator 
has the same duties to perform, but he is appointed by the 
Court, and is not designated by the person who makes the 
will. A person's assigns are those* to whom he sells out, or 
transfers his interest. His heirs are those who inherit his real 
estate, unless he wills it away from them. 

In the case stated, let us suppose that John Day goes to 
work and digs the well, and does everything precisely accord- 
ing to the agreement, except that he is three weeks late in 
completing his undertaking. According to the strict terms of 
the bond, he now owes Adam Stuart $300, because he has not 
done exactly what he agreed to do ; but it would be exceed- 
ingly unjust if he were made to pay all this money for a trifling 
default. In such a case, he will not be compelled to pay the 
$300, but only to compensate Adam Stuart for any loss which 
the delay may have caused him. To use technical language, 
John Day will be "relieved against the forfeiture" of the $300. 
Generally speaking, when a thing shocks that sense of justice 
which the Creator of men has planted in the human heart, 
there is some way of relief, either at law or in equity ; but 
one has to know the law exceedingly well, before he can say 
in all cases exactly how that relief may be obtained. 

Bonds are frequently given to secure the performance of 
agreements to convey real estate, or to build houses, or to be 



22 BONDS. 

honest and faithful in the discharge of responsible duties. 
Bonds are usually required by law when any one undertakes 
a public office, or a position of trust under the appointment of 
a Court of Justice. Thus, administrators give bonds, and 
trustees, and guardians, and receivers ; also, postmasters, and 
collectors of customs, and United States marshals ; also, 
sheriffs, and county treasurers, and notaries, and clerks of 
courts. Brewers, distillers and manufacturers of tobacco are 
obliged to give bonds, in order to protect the internal revenue. 
Parties to legal proceedings sometimes have to give bonds ; 
as, in cases of appeal, attachment, and injunction. These 
are a few prominent instances out of many. They show what 
an important position bonds occupy in the transaction of 
public and private affairs. 

Mention has been made of a receiver. A receiver is an 
officer appointed by a court to take charge of some concern or 
business which has met with difficulties; and he gives a bond, 
because valuable property is placed in his charge. To take a 
familiar instance : when a railroad cannot be made to pay 
dividends, and is, in fact, bankrupt, nothing remains but to 
dispose of it. This is not always an easy matter ; and, in the 
meanwhile, it would be inconvenient, if not ruinous, to stop 
the trains from running. So the road is put into the hands of 
a receiver, until some satisfactory arrangement can be made. 

The person furnishing a bond is usually called upon to 
supply a surety or sureties. This is almost always the case, 
when a bond is required by law. It is customary for the 
surety to sign the bond along with the principal, whose surety 
he is. In doing this, he undertakes that he himself will 



BONDS. 23 

be responsible, if the principal fails to perform his duty. He 
walks, as it were, arm in arm with the principal. 

In the instance already stated, with reference to the well, 
John Day's obligation would not have been substantially in- 
creased by his giving his own bond ; and a bond, signed by 
himself only, might be worthless, but the name of a good 
surety would render it valuable. It is, in fact, the addition 
of the names of sureties that makes the giving of bonds effect- 
ive and useful. We may be confident that John Day's surety, 
when he saw him neglecting the work he had promised to do 
for Adam Stuart, would not long remain idle. He would 
use every effort to persuade or compel him to perform his un- 
dertaking, in order that he, the surety, might be protected 
from loss. Under the conditions, Adam Stuart would prob- 
ably get his well dug, by means of the bond with surety, 
though he might have failed to get it dug, if there had been 
a mere agreement, or even a bond without any surety. 

When a statute requires the giving of a bond with sureties, 
it usually calls on the sureties to "justify" in a certain 
amount. This means that they must swear to being worth so 
much money, when all their debts are paid. 

If the surety should unfortunately be obliged to pay for his 
principal's default, he is entitled to recover the amount in 
question from him, if he can. Any difficulty on this point 
arises, not from the absence of a legal right on the part of 
the surety, but from the lack of property on the part of the 
principal. 

If the person who received payment from the surety has 
taken any additional security, the surety, on making pay- 



24 BONDS. 

ment, is entitled to the benefit of that security. It is not 
easy to express this more simply ; but the point is an import- 
ant one, which can be illustrated by an example. 

* * * Let us go back once more to the case of the well, and suppose 
that John Day gave Adam Stuart a bond for $300, conditioned on the due 
performance of the work, and that Henry Wilkinson went on the bond as 
a surety, and had to pay Adam Stuart $100, by reason of some defect 
in the doing of the work. Henry Wilkinson would have a legal claim 
against John Day for the $100; and, if Adam Stuart had not only taken 
the bond with surety, but had also received some pledge from John Day 
on the same account, Henry Wilkinson, on paying the $100, would be 
entitled to hold that pledge, until he himself should be repaid. If the 
pledge were a valuable watch and chain, Adam Stuart, on being paid for 
the loss he had sustained, would be bound to hand over the watch and 
chain, not to their owner, John Day, but to Henry Wilkinson, who would 
go on holding them for his own security. If John Day had given a 
mortgage instead of a pledge, the same principle would be applied. 

There are very many points in connection with the law of 
suretyship, which no one but a lawyer is expected to under- 
stand ; but the points already mentioned are of such frequent 
application, that every intelligent man and woman of business 
ought to be acquainted with them. 

There is a kind of bond frequently used in the criminal 
courts, called a recognizance. The "obligee" in a recogniz- 
ance is the commonwealth; that is, practically, the common- 
wealth receives any money that is paid when the condition is 
broken. Recognizances are used to compel the appearance 
of witnesses in criminal cases, to compel a prisoner to appear 
in court when his case comes to be tried, to compel him to 
keep the peace, and so forth. 



BONDS. 25 

* * * Jerry Brinden, a man of very doubtful character, is charged 
with stealing a horse. He can be committed for trial at once, but the 
trial will not come on for a month. The witnesses in the case are not 
by any means citizens of the first class, and it is quite possible that they 
may be out of the way when the case is called. To make sure that these 
parties will be on hand when they are wanted, Brinden has to enter into a 
recognizance to appear for trial, and the witnesses have to enter into 
recognizances to be present at the proper time and place. 

Generally speaking, the person giving the recognizance must 
provide a surety. Occasionally, however, a prisoner is allowed 
to go free on his own recognizance without any surety. 

* * * A man is tried and found guilty of some offense which he is 
not likely to repeat. He was never arrested before, and the judge thinks 
he is already sufficiently punished by the disgrace and anxiety of the trial. 
He therefore requires him to "enter into his own recognizances" to appear 
in court for sentence whenever he shall be called upon to do so. That 
means that, if he behaves himself, or if he leaves the State, he will never 
be thus called upon. 

If a person, accused of an offense, cannot give such recog- 
nrzance as is required of him to insure his appearance, he is 
imprisoned until the trial ; and necessary witnesses in crimi- 
nal cases- are sometimes imprisoned also, in default of recog- 
nizances. 

A recognizance is not a "commercial document;" but a 
business man may be asked to become a surety on a bond of 
this kind, and he ought to know what it is. No one should 
become a surety for another, under whatever circumstances, 
without reckoning the consequences. As the Book of Pro- 
verbs says : " He that is surety for a stranger shall smart for 
it \ and he that hateth suretyship is sure." 



CHAPTER III. 



CONCERXI^G SALES OF MERCHANDISE. 



The commonest kind of agreement is that which has to do 
with the buying and selling of merchandise. An agreement 
of this description need not be in writing, unless the agreed 
price of what is bought and sold amounts to $50. This, at 
least, is the limit in most States of the Union. It need not 
be in writing when the goods exceed that value, provided the 
buyer pays the price, or a part of it, or actually receives the 
goods, or a part of them. 

# # # a retail clothier goes to a wholesale house, and orders 100 
overcoats, at prices varying from $7 to $15. The invoice amounts to 
$1075. H e does not s i£ n an y writing, though the salesman makes a note 
of the order. He does not make any payment, nor does he carry away 
with him a single overcoat. Singular as it may appear, he is not legally 
bound to take the overcoats when they are sent to him. If he had ordered 
them by means of a letter; if he had signed a memorandum, even in pen- 
cil, at the time of the sale ; if he had wanted two dozen overcoats to be 
delivered at once, or even a single one, and had taken possession of it as a 
part of the whole quantity ; if he had paid something, however little, on 
account, then the agreement would have been binding upon him. 

It would indeed be disgraceful conduct on the part of the 
retail clothier to stand upon his legal rights, and cancel a bar- 
gain which had been fairly made, under such circumstances. 
If he were to do so, he would be likely to acquire the char- 
acter of a dishonest tradesman, which would be to his disad- 



SALES OF MERCHANDISE. 27 

vantage; but we are now considering the transaction merely 
in its legal bearings. This instance is one out of many, prov- 
ing how desirable it is to embody an agreement in writing, 
when it involves any matter of importance. 

If a dealer sells goods for cash, and the cash is not forth- 
coming, the buyer, of course, cannot demand possession of 
them. The seller has the right to hold them on the buyer's 
account, until payment is offered. The agreement is not dis- 
solved by the failure of the purchaser to pay promptly. If 
the purchaser should delay payment for an unreasonable time, 
the seller would be entitled to sell the goods again for what 
they would bring, and charge the first purchaser with the dif- 
ference in price, if any : always supposing the agreement itself 
to be a binding one, under the rules already explained. 

If the seller of goods disposes of them on credit, and the 
buyer fails to pay, he cannot go to the buyer's store and re- 
claim the goods, or any part of them, on the ground that they 
are not paid for. He is simply a general creditor, and can 
bring his action at law, and get judgment, and have execution 
upon whatever goods of the debtor he can find, whether he 
himself supplied them or not. In some States, an "unse- 
cured" creditor, like the man we are now speaking about, 
can have an "attachment " issued when he brings his action, 
and thus secure himself by means of any property belonging 
to his debtor on which he can then lay hold ; but this is not 
the law generally. As a rule, an " attachment " will be issued 
only when the debtor absconds, or is . hiding, or is otherwise 
trying to cheat his creditors, or when he resides out of the 
State, but has property in it. An attachment is a legal pro- 



28 SALES OF MERCHANDISE. 

cess, by which the property of a debtor is placed in charge of 
an officer of the law, until the controversy between the debtor 
and his creditor is decided. The creditor, in ordering the 
attachment, is required to give a bond, to secure the debtor 
from loss, in case the claim should not be proved when the 
cause is tried. There are statutes in every State on the sub- 
ject of attachments, and reference must be made to them for 
particulars. 

It sometimes becomes important to ascertain at what pre- 
cise time the ownership in goods changes hands ; that is, ex- 
actly when they cease to belong to the seller, and become the 
property of the buyer. We have already seen that the unpaid 
seller, who sold for cash, might go on holding the goods ; but, 
in such a case, they would belong to the buyer, and be at his 
risk in case of accident. The buyer would have a right to 
claim them, within a reasonable time at least, on offering the 
agreed price. 

The rule on this point is thus stated : when the terms of 
sale are agreed on, and the bargain is struck, and everything 
the seller has to do with the goods is complete, they then be- 
come the property of the buyer, although there be no actual 
payment or delivery. Generally, if the seller has to finish 
the goods in any way, or to separate them from other goods 
of the same kind, or to weigh them, or to measure them, or 
make delivery of them, the title does not pass; and they do 
not specifically belong to the buyer, and are not at his risk, 
until this is done. 

* * * A manufacturer of railroad cars received an orderfor ten cars, 
of a particular description. In order to complete them, it was necessary 



SALES OF MERCHANDISE. 29 

to procure some fittings from a distant city. There was a long delay in 
getting these, though the builder did all in his power to expedite matters. 
All of his work was done, and he was only waiting for the fittings. Be- 
fore they came, a fire broke out, and the cars were burned. The loss fell 
on him, not on the company which ordered the cars. The property had 
not yet changed hands. 

This example admits of no doubt ; but, in some cases, 
where the intention of the parties is clear, the property may 
pass from the seller to the buyer, before the goods are actually 
weighed, measured or separated. 

* * * a farmer had iooo bushels of grain in an elevator. He sold 
500 bushels of it to a man in town, giving him an order for the same on 
the parties in charge. There was no necessity to separate the 500 bushels 
from the rest, all the grain being alike. The property passed to the man 
in town without any separation. 

From the foregoing remarks, it is evident that the seller of 
goods may lessen his chance of loss by promptly getting them 
into that shape which the contract requires. 

We now come to the topic of warranties. A warranty is 
an assurance given by the seller to the buyer at the time of 
the sale, and refers either to the title or to the quality of 
that which is sold. 

The seller of goods, selling them at anything like a fair 
market price, is understood to warrant the title, although 
nothing whatever may be said on this point. This warranty 
simply means that he will protect the buyer, in case it should 
turn out thai he had no right to sell the goods to him, and 
the buyer-should have to give them up to their true owner. 



30 



SALES OF MERCHANDISE. 



The rule in question is very just. Otherwise, the buyer would 
lose his money, and get nothing. As for the seller, if he pro- 
cured the merchandise in good faith, he can go to the person 
who sold it to him, and recover the price. 

* * * A horse and buggy had been sold and resold, and were finally 
bought by a doctor. As he was driving out to see his patients, a' man 
stopped him and said: "You are driving my horse, and that buggy be- 
longs to me as well." " No, indeed," replied the doctor, " I bought the 
horse and buggy from Mr. Goldsmith, and he bought them from a man 
named Wright." "That may all be," said the other, "but I can prove 
that they were stolen from my stable about twelve months ago." This 
statement was correct, and the doctor had to give up the horse and buggy, 
and Mr. Goldsmith had to return him the price paid for them. 

Questions concerning this "warranty of title" are not 
very frequent. There is another kind of warranty which is of 
greater practical consequence, and that is the warranty of 
quality. 

In making any purchase, the buyer is supposed to have 
common sense and good judgment, and to make use of both ; 
and he cannot withdraw from his bargain without the consent 
of the seller, merely because he is disappointed in the quality 
of the thing which he bought. In legal language, there is no 
implied warranty of quality, and the buyer must take care of 
himself as to that. 

The courts have modified the rule just stated to this extent: 
when a thing is bought and sold for a special purpose, and 
that purpose is known to the seller at the time of sale, the 
thing must be reasonably fit for that purpose. 



SALES OF MERCHANDISE. 31 

* * * There have been remarkable instances of this in well-known 
cases. A mercantile firm had occasion to use ropes in lifting heavy casks 
into its warehouse. A quantity of rope was bought, without anything be- 
ing said about the necessary strength ; but the ropemaker knew what it 
was wanted for. The rope broke under the strain, and the ropemaker was 
held responsible for the damage. In another case, copper was bought to 
sheathe a vessel. It turned out to be a very poor quality, and the salt 
water corroded it. The court decided that the seller was bound to supply 
copper reasonably suitable for the purpose, which this was not. On the 
same principle, if I go to a store and buy a lamp, I may justly complain if 
it gives no light ; but I have no proper cause of complaint, if 1 find that 
the ornaments of the lamp, which I thought very neat when I bought it, 
are really no better than so much gilt ginger-bread ; neither can I properly 
complain, although I am generally disappointed with my bargain, if only the 
lamp will give a fair light. It was sold for the purpose of lighting; and, 
while it need not be excellent in its quality, it must be reasonably fit for 
that purpose. 

If the buyer wishes to protect himself beyond this point, 
he must secure an express warranty. That is to say, he must 
require the seller to say expressly that the thing in question is 
of such and such materials, or of a certain and recognized 
quality or grade, or that it will do work of some special kind 
with a certain degree of excellence. To create an express 
warranty of quality, there must be some statement of a 
definite character. This statement need not be in writing. 
It is binding if made by word of mouth; but, in any purchase 
of large value, it is obviously advisable to have it in writing. 
Whether spoken or written, it must relate to some well-defined 
fact. 

* * * A young man was buying a coat in a clothing store. The 
storekeeper assured him that it was a splendid piece of goods, very fash- 
ionably made, and that he would look well in it. The customer asked 



32 SALES OF MERCHANDISE. 

what material the coat was made of. The merchant replied, " It is all 
wool." The young man bought and paid for the coat, and took it home. 
He found that it was very far from being " a splendid piece of goods," 
that he did not look well in it— at least so his friends said — and that it 
was made of a mixed material, part wool and part cotton. The state- 
ments about its being splendid, and fashionable, and about his looking well 
in it, were too vague and general to amount to anything; but the statement 
about iis being " all wool " w 7 as specific and precise, and amounted to a 
warranty. The young man had a right to return the coat and demand the 
repayment of his money. Where a farmer bought a reaper, the statement 
that it would cut ten acres a day, if rightly used, was a warranty. 

The seller, in his anxiety to make a sale, will occasionally 
assure the buyer that the thing sold will give him entire satis- 
faction. This is a dangerous statement to make ; although, 
taking one sale with another, the seller may perhaps find it 
profitable to make it. The law of the matter, as generally 
laid down, is this : if the seller promises the buyer entire sat- 
isfaction, he is bound to satisfy him ; and it makes no differ- 
ence whether the buyer's requirements are reasonable or un- 
reasonable. 

* * * A certain widow went to a sculptor to order a marble bust of 
her deceased husband. She expressed a fear that the bust might not be a 
good likeness. Eager to effect a sale, the sculptor assured her that he 
would do his work so as to satisfy her completely. With this understand- 
ing, she directed him to proceed. As the sequel shows, the remark which 
the sculptor made, in his anxiety to secure the order, was not a very prudent 
one. The bust was finished, and stood in the sculptor's studio. Almost 
every one who saw it thought it excellent; but die widow said he had not 
caught the exact expression, and she was not satisfied. wShe refused to receive 
or pay for the bust. The court sustained her, saying that if the sculptor 
chose to make a bargain like that, he must perform it. If he had prom- 
ised her reasonable satisfaction, he could have shown that she ought to 
have been satisfied, whether she really was or not. 



SALES OF MERCHANDISE. 33 

There have been a great many cases of this kind in the 
courts, involving all sorts of things, from a set of teeth to an 
elevator. The seller who has promised perfect satisfaction 
has usually had the worst of the controversy, and has often 
paid dearly for his experience. 

Goods are frequently sold by sample. A sale of this de- 
scription carries with it such a warranty as the reader might 
expect, namely, that the bulk is equal to the sample. When 
the buyer has had a fair opportunity of examining the sample, 
he cannot complain of any defect in the goods, when the 
same defect existed in the sample, though he did not notice 
it. If, however, he had not a fair opportunity for examina- 
tion of the sample, the case is different. 

* * * In a case which went to the Supreme Court of the United 
States, the subject of the sale was a species of dye, called madder. The 
sample was in a bottle, and was "very handsome to look at;" but the 
buyer was not allowed to open the bottle. If he had opened it and exam- 
ined it, he could not then have complained of any defect existing alike in 
the sample and in the bulk. As it was, he was allowed to recover, be- 
cause he had not been fairly dealt with, and the goods delivered to him 
were not up to the proper standard. 



CHAPTER IV. 



SALES OF MERCHANDISE, CONTINUED. 



If the purchaser finds that the goods he has bought do not 
correspond to the warranty, three courses are open to him, 
according to the circumstances : (i) he can refuse to take 
the goods, because they are not what he agreed to purchase; 
(2) he may take them as they are, and claim damages on 
account of breach of warranty ; (3) he may rake them, and 
claim a proper reduction in the price, when the account be- 
comes due. 

* # * a retail merchant sends an order to a wholesale house for 100 
pairs of ladies' shoes, "real French kid," at list prices, subject to the usual 
discount. When he gets the shoes, he finds that they are not what are 
known in the trade as "real French kid," although invoiced as such. 
They belong to a lower grade, called " imitation French kid." As has 
already been said, he has the right to notify the seller that he will not take 
them. Let us suppose, however, that the boxes were put aside, and the 
mistake not discovered until after the account was paid. In that case, he 
can claim for the difference in value ; and, if an amicable settlement is im- 
possible, he can bring an action to recover the difference as " damages." 
If he finds, before he has paid for them, that the shoes are not what he 
ordered, he can refuse to pay, except with a proper allowance; and, if 
the seller will not make a proper allowance, he can plead the breach of 
warranty when the seller sues him for the price. In other words, he can 
wait until he is sued, and the court will instruct the jury to make such an 
allowance. 



SALES OF MERCHANDISE. 35 

The amount which ought to be allowed depends entirely on 
circumstances. In the case already given, it would be the 
difference in current price of the two qualities of shoes. The 
breach of warranty may involve much larger consequences 
than in the illustration just given. If so, the allowance must 
be measured by these consequences. 

* * * A market gardener ordered from a seed store a large quantity 
of " Wakefield " cabbage seed, at an agreed price. The quantity of seed 
ordered was delivered, paid for, and sown. When it came up, the gardener 
found the cabbages were not " Wakefield," but cabbages of an inferior 
kind. Inasmuch as the order called for " Wakefield" cabbage seed, and 
the goods were billed as such, the seller had unmistakably warranted 
them to be of that variety. In a suit for damages brought by the 
gardener, the seedsman was made to pay, not merely the difference in value 
between the two kinds of seed, but the loss which the gardener sustained 
by not getting that particular kind of cabbage which the seed ordered 
would have produced. 

Damages for breach of contract ought to amount to as 
much as will reasonably compensate the injured person for the 
injury done to him. They ought not, usually, to do more than 
this. In case of the shoes, the difference in value would be a 
reasonable compensation; while, in case of the cabbage seed, 
it would not. This is the rule applied in a vast majority of 
cases. Sometimes, there has been such conduct on the one 
side or the other as justly increases or lessens the "measure ot 
damages;" but it is sufficient now to note the general rule. 

Persons will occasionally agree beforehand as to the sum 
which shall be paid in case of a breach of contract. Such an 
agreement is sometimes very useful, and again it may become 
a source of trouble. On the one hand, it may be a matter of 



36 SALES OF MERCHANDISE. 

great difficulty to appraise or calculate the amount of dam- 
ages, when damage occurs. In such cases, it is convenient 
to make a special provision on that subject. On the other 
hand, a general stipulation for the payment of so many 
dollars for any breach of contract is usually disapproved, be- 
cause it makes no distinction between a serious breach and 
one of small consequence. In the latter case, the agreement 
will not be strictly enforced. The party in fault will simply 
have to compensate the other in a reasonable amount. 

* * * (i). A druggist took a young man in as a clerk, promising to 
teach him the business. Being a prudent person, he considered that if 
this young man should learn all he had to teach him, and then open a 
drugstore near him, the result might be detrimental to his own trade. He 
therefore required the young man to sign an agreement, promising to pay 
$2500 if he opened a drugstore within a certain distance of the place. 
The young man, on starting a business of his own, did open a drugstore 
within the prescribed distance, and supposed he would have to pay only a 
moderate compensation for the injury he had done ; but it would not have 
been easy to estimate that injury exactly; and, as the parties had already 
agreed upon the amount, he had to pay the $2500. The sum thus agreed 
on is called in law "liquidated damages." 

* * * (2). A land owner wanted a house built. He was a very 
exacting man, and wished to have it built precisely in a certain way, and 
by a certain time. To make sure of all this, he made the builder agree to 
pay him $1000 if he failed in any particular. The builder was three weeks 
late in finishing the house. Inasmuch as the damage thus caused might 
be a subject of calculation, and could not well amount to #1000, the 
builder had to pay only such a sum of money as would be a fair compen- 
sation for the delay. 

* * * (3)- A manufacturer of gold pens required his employees to 
give a bond to pay a fixed sum of money if they revealed the secrets of the 



SALES OF MERCHANDISE. O/ 

manufacture. The loss incident on the breach of their duty in this respect 
would not be easy to ascertain. Therefore, an employee who did reveal 
the secrets of the manufacture was made to pay the full amount named in 
the bond. 

* * * (4). An actor bargained with a manager of a theatre to take 
the part of principal comedian, for four consecutive seasons, at a fixed 
salary per night. It was agreed, in writing, that if either party failed to 
fulfill his agreement, or any part of it, or any stipulation contained in it, he 
should pay the other the sum of $5000. The actor refused to act during 
the second season. No distinction being made in the agreement between 
serious and trifling defaults, the court held that the damage could be esti- 
mated by a jury, and declined to enforce the whole penalty. 

These examples lie outside of sales, it is true; but they 
furnish a convenient illustration of an important principle. It 
is not always easy even for a lawyer to tell whether the amount 
agreed on will have to be paid in full. The principal point 
to remember is this : a stipulation for an agreed sum, as 
damages for breach of any kind of contract, will not always 
be literally enforced, and advice should be had in framing 
such a stipulation. 

There is a case which does not often occur; but, when it does, 
a knowledge of the law may save hundreds or thousands of 
dollars. We have seen that a seller, who is unpaid, having 
sold on credit, cannot go to the buyer's store, even if the 
latter is bankrupt, and take back the goods he sold, on the 
ground that they are not paid for; but, if the goods are yet 
in transit, and the buyer fails before he gets them, they can be 
reclaimed. This is what the law calls stoppage in transitu, or 
stoppage on the way. The seller, in such a case, should lose 
no time in notifying the carrier not to deliver the goods. 
His notice to the buyer will be of no value whatever. 



38 SALES OF MERCHANDISE. 

* * * A retail dealer in St. Louis orders an invoice of hardware in 
Pittsburg, to be sent as freight. While it is on the road, the retailer be- 
comes insolvent. He cannot pay his obligations in the ordinary course of 
his business. A friend in St. Louis knows of this circumstance, and 
happens to hear of these goods as being on the road. He, of his own 
accord, telegraphs the seller in Pittsburg, and receives a reply instructing 
him to stop the goods. He then writes a note to the railroad company, 
in the name or on account of the seller, ordering the company not 
to deliver the goods, and hands that note to the freight agent at St. 
Louis. The railroad company is now bound to refrain from delivering the 
goods. The seller in Pittsburg can well congratulate himself on having 
received that dispatch ; because, if the goods had not been stopped in time, 
he would have had to take his chance, along with the other creditors of 
the man in St. Louis, and might have lost the whole value of his invoice. 

It frequently happens that a person living in one place will 
order goods from another place, and that they will be 
delivered by means of a common carrier ; the last example 
affords an instance of this. A common carrier is a person or 
a company that undertakes to carry goods (or passengers, or 
both) for the public generally, between certain points. The 
responsibility of a common carrier is peculiar. When once 
he receives goods fcr the purpose of carrying them, he is 
bound to deliver them safely. If they are stolen from him, 
or accidentally burned, or lost, he has to pay their value. 
This rule, however, admits of some exceptions. If the loss 
arises from what the law calls " the act of God," or from the 
act of " the public enemy," the carrier will be excused. By 
" the public enemy," is meant an enemy with whom the state 
or nation is openly at war. As we live in times of peaee, 
this exception is seldom heard of. If a mob of rioters 
were to attack a train, and plunder the freight cars, they 
would not be "the public enemy," and the railroad company 



SALES OF MERCHANDISE. 39 

would have to account for the loss. By " the act of God" 
is meant some sudden and violent operation of nature, which 
could not be foreseen, and against which ordinary prudence 
could not guard. Thus, an earthquake, or a great tempest, 
or a stroke of lightning, would be "the act of God," and the 
carrier would not be responsible for any damage thus caused. 
If the goods perished by reason of bad packing, the carrier, 
of course, could not be charged ; nor if some inherent defect 
in the goods themselves were the cause of loss; as, for example, 
where a cargo of oranges became spoiled without the carrier's 
fault. In the absence of special circumstances like these, 
the carrier is bound to deliver goods safely. The reason of 
the rule is this: the goods are almost always beyond the 
owner's reach, while they are thus carried. He is not in a 
position to prove exactly what became of them, or how they 
were injured. He would, therefore, be at a serious disadvant- 
age, were the rule of law different. 

So far as the seller is concerned, when once he has placed 
the goods in the carrier's hands for the purpose of carriage, 
they are no longer in any degree at his risk ; that is, suppos- 
ing him to have supplied such goods of the kind required as 
would ordinarily bear the journey, and to have packed them 
with care. Any remaining risk rests upon the buyer and the 
carrier ; mainly on the carrier. Thus, if the goods are de- 
stroyed by fire, the carrier, as we have seen, will have to pay 
for them ; but, if the fire were the result of a stroke of light- 
ning, the consignee (as the purchaser is sometimes called) 
would be the loser ; because, as we have just seen, lightning 
occurs by "the act of God." 



40 SALES OF MERCHANDISE. 

The question of responsibility during the journey is not, 
however, very frequently raised, since, in all but a few instances, 
the carrier is absolutely bound to deliver safely. When the 
journey is over, the matter becomes important. As soon as 
the act of carriage is complete, the carrier becomes a " ware- 
houseman," and is responsible for only ordinary care of the 
goods held by him. If, therefore, the carnage being over, a 
fire should break out in the neighborhood of the carrier's ware- 
house, without any fault of his, and should destroy the ware- 
house with its contents, the carrier would not be liable to the 
consignees whose goods might be thus destroyed. The con- 
signees would be the losers, subject to any insurance they 
might have effected. Those who are in the habit of receiving 
parcels of goods from time to time, by means of common car- 
riers, frequently hold an insurance on goods in transit, to 
cover this very risk. A steamboat may be a common carrier, 
just as much as a railroad, and the wharf will be a warehouse 
in the sense of the rule now stated. 

Generally speaking, the common carrier of merchandise 
does not undertake to deliver it at the consignee's address, 
but merely to notify him of its arrival. If the carrier undertakes 
to rhake a complete delivery, his risk continues until that com- 
plete delivery is made; that is, until he places the goods- on 
the premises of the consignee. If the consignee is to send to 
the warehouse for them, or employs the carrier, for additional 
pay, to deliver them from the warehouse, the original risk 
ends when the original transit is over. 

Such is the general rule. It may be modified by local cus- 
toms, and by matters of special contract, which it would be 



SALES OF MERCHANDISE. 41 

useless now to consider. Some common carriers, such as 
express companies, habitually deliver what they carry at the 
address of the person who is to receive it. Railroad and 
steamboat companies, which are the greatest of all carriers, 
usually do not. The question, at what exact point of time 
the common carrier becomes a warehouseman, may, in some 
cases, be difficult to determine. It always resolves itself into 
the further question of whether the work of carrying is fully 
over. 

Common carriers, knowing how heavy their responsibility 
is, in regard to the safe carriage of what is entrusted to them, 
frequently seek to limit that responsibility by special condi- 
tions, which are printed in small type on their receipts or 
tickets ; and this they do as to freight, baggage and 
passengers. Generally speaking, the person who needs the 
services of a common carrier has no option except to employ 
him ; and this circumstance tends to place the public at the 
mercy of the railroad companies. These companies enjoy 
large privileges, and undertake a great public duty. They 
are not, therefore, permitted to make what bargains they 
choose, like private individuals. All conditions which they 
impose on their customers must be reasonable and just. The 
question as to what conditions are reasonable, and what un- 
reasonable, must be decided by courts of law. There are 
many decisions on various points which have thus been liti- 
gated. The general result of them may be stated as follows: 

(i) Conditions which are intended to protect the company 
from the consequences of its own negligence, or the negli- 
gence of those whom it employs, are unreasonable and void. 



42 SALES OF MERCHANDISE. 

(2) Nevertheless, the company may relieve itself of a large 
share of its responsibility by making a special contract with 
its customer, at reduced rates. 

(3) As to passengers' baggage, it may lawfully decline to 
carry more than a certain weight, or to be responsible for 
more than a fixed value, unless specially paid for the same ; 
but the amount, in weight and in value, must answer the 
reasonable requirements of ordinary passengers. 

The law of sales, which we have just been considering, is 
very extensive ; and these who have discussed it fully have 
written volumes upon it. One of the leading works on the 
subject is that of the late Mr. Judah P. Benjamin, who went to 
England, and practiced law there, after the collapse of the 
Confederacy. Some of the main points concerning sales have 
been outlined here. A business man ought to know under 
what circumstances a writing is necessary, what a warranty is 
worth, when goods can be stopped in transitu, how far a com- 
mon carrier of merchandise is usually responsible, and where- 
in a common carrier differs from a warehouseman. Knowing 
these things, he can act intelligently in most cases of ordinary 
occurrence, and in some cases which are not ordinary. When 
the circumstances, besides being unusual, involve much loss or 
gain, he ought to get the best advice to be had, and to get it 
promptly. 



CHAPTER V. 



CONCERNING INSURANCE, 



Almost every person engaged in business has more or less 
to do with insurance. The prudent merchant insures his 
stock in trade against accidental fire ; the owner of a cargo 
insures it against perils of the seas ; the father of a family 
insures his life for their benefit ; the traveler occasionally 
insures himself against accident. Insurance is an agreement 
whereby one party, called the insurer, undertakes to protect 
another party, called the insured, against some apprehended 
loss. The "insurer" is almost always an insurance com- 
pany. 

Pour kinds of insurance have been mentioned. Of these, 
marine insurance is the most ancient, having been used for 
six hundred years, at least. Fire insurance came into promi- 
nence after the Great Fire of London in 1666, and life insurance 
about forty years later. Accident insurance is quite modern. 

There are two kinds of insurance companies, known as joint 
stock companies and mutual companies. In a joint stock 
company, the shareholders take shares of the stock at a certain 
price, usually paying a part at once, and the rest when duly 
called on. The money paid in is invested according to the 
discretion of the directors, and furnishes security to those who 
do business with the company. The legal obligation of the 



44 INSURANCE. 

shareholders, to pay up what is still due on their shares, fur- 
nishes additional security. The security of the concern usu- 
ally consists in land, buildings, miscellaneous investments, 
debts due from the shareholders on their shares (otherwise 
called • ' unpaid capital,") and any reserve fund that may have 
been accumulated. 

With a mutual company, the case is different. There, the 
persons who obtain insurance rely upon each other. They 
make a subscription to start the company in motion, and 
generally give notes in proportion to the amount of their own 
insurance, binding themselves thereby to pay at a certain rate 
when losses occur. The profits are divided in due proportion. 
The plan of mutual insurance seems economical, and answers 
well when the members of the company are trustworthy, and 
the management is careful and honest. Mutual insurance com- 
panies frequently do a general business, beyond that which 
their name implies. 

The document expressing the contract of insurance, and 
defining its terms, is called a policy. The money paid for the 
insurance is called the premium. Although the law does not 
require the contract to be in writing, the companies always 
make out a policy. When the company's agent agrees to take 
the risk, it is understood, in case of fire insurance, to operate 
immediately; and the risk attaches, although the policy is not 
yet made out. In other words, a person who has bargained 
for the insurance of his property against fire, will be protected 
if it burns down after the bargain is made, but before the 
policy is filled out and signed. There is no reason why the 



INSURANCE. 45 

insurance should not commence at a future date, if that be the 
intention of the parties ; but the intention generally is, that it 
shall commence at once. 

We will now inquire what a man may insure. As regards 
property, he is allowed to insure all that he owns, and any 
interest he may have in property that he does not own ; but 
the law does not allow him to engage in a gambling specula- 
tion, under cover of insurance. 

* * * A building contractor owns a house on Market street. He has 
just built a stable on Fourth street, for a man who has not yet paid him. 
His work on the stable is worth $800, and he has filed a mechanics' lien, 
to protect himself. If his own house were to burn down, of course he 
would be a loser. If the stable were to burn down, he would also be a 
loser, because the security of his claim for the $800 would be diminished. 
He can insure his own house, and the $800 interest in the other man's 
stable ; but, if he were to insure the church around the corner, which he 
does not own, and in the preservation of which he has no pecuniary inter- 
est, the law would not assist him to recover money on the church, were it 
to burn down, any more than it would assist him to recover money due on 
an unlawful wager. 

When property is insured, and afterwards sold, the consent 
of the insurer must be obtained. Unless it is obtained, his lia- 
bility ceases. The company does not insure property against 
destruction. It rather insures the owner against loss ; and, if 
the insured no longer owns the property, he sustains no loss 
when it perishes. The execution of a mortgage makes no 
difference in this regard, because the mortgagor is still the 
owner. The usual mode of signifying consent is by endorse- 
ment on the policy ; and policies of fire insurance commonly 
have a blank form ready printed on the policy for this pur- 



46 INSURANCE. 

pose. No honest company will refuse its consent to a transfer 
of the insurance, without some good reason. 

We have already seen that a common carrier is responsible 
for the destruction, by fire, of the goods which he is carrying. 
This being the case, he has an "insurable interest" in those 
goods, although they do not belong to him. Common car- 
riers usually keep an "open insurance" on goods in their 
charge, to protect themselves against this cause of loss. When- 
ever a person has charge of the goods of another, in such a 
manner as to be responsible for their destruction, he is at 
liberty to insure them. 

When a mortgage is placed upon a building, the mortgagee, 
to whom the money is due, has an insurable interest to the 
amount of the debt. The debtor, who is otherwise called the 
mortgagor, may insure the property up to its full value, or as 
near that as the company will allow. As to this matter, the 
existence of a mortgage makes no difference to him. Both he 
and his secured creditor, therefore, have an "insurable inter- 
est" in the premises; but the creditor is not allowed to insure 
for more than his own interest, which is measured by the 
amount of the debt. Otherwise, he would be speculating on a 
hazard which was no concern of his. In practice, however, 
the creditor usually requires the debtor to keep the premises 
insured for his benefit, and does not take out a policy himself. 
An insurance exceeding the interest of the person insured is 
called an "over-insurance." 

Where a retail merchant holds a stock of goods, he is at 
liberty to value them, for the purpose of insurance, at their 
retail price. This will not be an over-valuation, though the 



INSURANCE. 47 

value as stated in the wholesale invoice is considerably less ; 
but a company seldom or never insures up to the full amount 
of the valuation. 

The principle is much the same in life insurance. You may 
insure your own life for the benefit of any one you choose to 
name, whether a relative or not. A husband may insure the 
life of his wife, and a wife the life of her husband. As to 
other domestic relationships, it may be said that whenever 
there is a condition of dependence and support, the person 
depending on the other, and receiving support, has an insur- 
able interest in the other's life. Thus, a child who is main- 
tained by his parent can insure his parent's life ; and a parent 
who is maintained by a child, or a sister who is maintained by 
a brother, can do likewise. There is a tendency to widen the 
rule somewhat, in these latter cases. Practically, however, 
the matter stands thus : where a person is supported by a near 
relative, or has some pecuniary interest in the continuance 
of that relative's life, so that the death of the latter would be 
likely to make him poorer, the person thus situated has an 
insurable interest in the life of the other. If there be merely 
the relationship without the pecuniary interest, the law should 
be examined as to the particular case. A creditor may insure 
his debtor's life, up to the amount of the debt. The essential 
thing (it has been said) is that the policy should be obtained 
in good faith, and not for the purpose of speculating upon the 
hazard of a life in which the person insured has no interest. 
The object of the transaction must be something beyond a 
mere wager. 

There is no limit, except in the case of creditor and debtor, 
to the amount for which a life may be lawfully insured. The 



48 INSURANCE. 

earning capacity of the person, or the commercial value of his 
life, does not enter into the question. If a man in ordinary 
circumstances chooses to devote all his savings to the payment 
of premiums, so as to enrich his family when he dies, he is at 
liberty to do so. There are a number of men in the United 
States whose lives are insured up to the amount of $500,000. 

The topic of warranties and representations" plays a great 
part in insurance law. The person desiring insurance is fre- 
quently required to make out an application, in which he has 
to answer a number of questions. This is invariably the case, 
when the insurance is on a life. It sometimes happens that 
the answers given are not strictly correct. Again, the policy 
usually contains a list of conditions and exceptions, drawn up 
by the insurer ; and some of these conditions and exceptions, 
if followed out literally, are hard and unreasonable. In these 
matters, the law stands very much on the side of the person 
insured. It is presumed that the insurer intended from the 
beginning to make an honest contract, and not to take advan- 
tage of every trifling slip or accident ; but, if a warranty or 
representation, made by the insured, involve some matter 
seriously affecting the risk, and be not duly fulfilled, the insurer 
may properly decline to pay for the loss, when it happens. If 
the insured, in filling out his answers, is not certain as to any 
of them, he ought to qualify what he writes down by some such 
words as "I think;" or, "to the best of my belief." 

*'*" * A debtor owed his creditor $5000, and had no speedy prospect 
of paying it. The creditor thought to himself, if my debtor were to die, I 
should lose all that money; so I will insure his life for $5000. The appli- 
cation contained the question, "Of what disease did the debtor's father 
die ?" The creditor thought he had died of an accident, when in fact he 



INSURANCE. 49 

had died of consumption ; and he filled in the wrong answer. The com- 
pany, relying on the supposition that there was no consumption in the fam- 
ily, issued the policy. When the debtor died, the truth on this point came 
out on inquiry. The company had been led into the contract by a mis- 
representation, and was not bound to pay the loss. Had the creditor writ- 
ten, "He died accidentally, "as I have been told:" or, "as I believe" the 
case would have been different. 

In answers like these, the law will lean in favor of the 
insured, if such a thing be reasonably possible. For example, 
a statement that the person, concerning whom the inquiry is 
made, is of "temperate habits," is not understood to mean that 
he never gets drunk; because a habit is not to be inferred 
from an act which may be only exceptional. A statement that 
the person is now "in good health," does not mean that his 
health is perfect, but only that it is reasonably good, so that 
he is a fair subject for insurance at the customary rates, accord- 
ing to his age. 

A similar principle is applied to the examination of condi- 
tions introduced by the insurance company for it> own benefit- 
For example, where a dwelling house was insured, and 
it was stipulated that the occupant might not "keep 
or have" on the premises any camphine, benzine or 
phosphorus, under pain of forfeiting the policy, it w^as held 
that this did not refer to the use of small quantities for domes- 
tic purposes. Where the stipulation was that the policy 
should become void if the premises became "vacant or unoccu- 
pied" for a certain period, it was held that this had no refer- 
ence to such absence as arose out of an invitation to attend a 
funeral. These are only a few instances out of many, showing 
that the companies will not be allowed to take an advantage 



50 INSURANCE. 

of the insured, by insisting strictly and severely on the words 
of the agreement. This principle really operates as much in 
favor of the insurer as of the insured ; because, if the insurer 
were permitted to dispute a claim on account of every trifling 
irregularity, he would be strongly tempted to do this fre- 
quently, and people would become afraid of effecting in- 
surances at all. 

The reader must not infer from the foregoing remarks that 
representations made by the insured, and conditions imposed 
by the company, are matters of very little consequence, which 
may be disregarded. Such is not the case ; but these repre- 
sentations and conditions will be so interpreted in case of dis- 
pute as to work out substantial justice, so that neither party 
shall be oppressed or victimized by the other. 

It occasionally happens that the insurance agent will say to 
the person seeking insurance, that a certain condition, though 
embodied in the printed form, will not be insisted on. It is 
generally unsafe to rely on this statement, especially when the 
condition is one which materially affects the character of the 
risk. If the company itself habitually disregards the perform- 
ance of the condition, so as to lead persons dealing with it to 
suppose that the condition is "a dead letter," it will not be 
allowed to insist on it. Perhaps the most important point 
under this head is that of promptness in payment of premiums. 
When the insurance company, through its agent, is accustomed 
to receive such payments after their due date, this is as much 
as to say that prompt payment, however desirable, is not 
absolutely necessary ; and then, in case of loss, it will be no 
sufficient answer to say that the last installment of premium is 



INSURANCE. 51 

over-due and unpaid. It is to be noted, however, that prompt 
payment is of greater importance in life insurance than in fire 
insurance. This arises, in part, from the fact that, in fire 
insurance, the risk is much the same from year to year, while, 
in life insurance, it grows continually more hazardous ; but 
we need not now inquire into all the reasons, It is sufficient 
for practical purposes to know that prompt payment of insur- 
ance premiums is always desirable, and particularly so in the 
case of a life insurance. 



CHAPTER VI- 



CONCERNING BILLS AND NOTES. 



In every civilized community, the volume of trade greatly 
exceeds the volume of currency. Let us try to examine what 
this means. 

If all transactions of paying money or lending money had 
to be conducted in cash, there would not be nearly enough 
cash in the country to meet the demand for it. If we were to 
add to the cash all the greenbacks which the government of 
the United States could safely issue, still there would not be 
enough money to do business with. 

We have said, all the greenbacks which the government 
could safely issue. No government on earth can create money. 
Greenbacks circulate like coined money because the people 
have confidence in them ; and the people have confidence in 
them because they know that any one who presents a green- 
back at the United States Treasury in Washington can get 
gold or silver in exchange for it, at its face value. 

This was not always so. During the Civil War, the United 
States Treasury did not redeem its greenbacks, because there 
were many more greenbacks in circulation than the Treasury 
had coin to buy them back with. The consequence was this : 
the greenbacks declined in value, until a hundred dollars in 



BILLS AND NOTES. 53 

greenbacks, in the month of July, 1864, were worth only 
about thirty-five dollars in gold. Then, far-seeing speculators, 
who felt sure that all would come out right, bought up green- 
backs, and locked them away in their safes, and finally made 
a good profit on them. 

If the United States government were to go on printing 
greenbacks in excessive quantities, as some very foolish people 
have wished, the result would simply be another depreciation 
in the value of the greenbacks ; and this would help to make 
a few men rich, and a multitude of men poor. The green- 
back is the promissory note of the United States, and it is 
worth so much, because the government is able and willing to 
keep its promise. 

While we see a great many greenbacks, and a great many 
American coins, no one ever sees a dollar which has been 
issued by any particular State, or a piece of paper which can 
be called the currency of any particular State. There is a 
good reason for this : the constitution of the United States 
provides that no State shall coin money, or " emit Bills of 
Credit." (Article I, Section 10). Were it not for this, we 
should probably have a curious variety of coinage and cur- 
rency on this continent. 

Let us now come more closely to the subject of this chap- 
ter. Inasmuch as all our coinage, and all our currency, is 
insufficient for commercial requirements, the law gives a pe- 
culiar credit to what is called " negotiable paper," which sup- 
plies so great a want. This term, "negotiable paper," in- 
cludes bills of exchange, promissory notes, bank notes, bank 
checks and several other instruments. The value of these 



54 



BILLS AND NOTES. 



documents, of course, depends on the commercial solvency of 
the persons or companies of persons who sign or endorse them. 
As business people are generally solvent, and care is generally 
used in taking negotiable paper by way of payment, this kind 
of paper, though not equal to currency, is found safe enough 
for ordinary transactions. 

By negotiability is meant, in the first place, a capacity of 
transfer from hand to hand, in such a manner that any person 
coming regularly into possession of the paper is immediately 
brought into legal relation with those whose names are already 
on the paper, and can bring an action in his own name, if 
payment is not made when the paper becomes due. There is 
also, connected with negotiability, a further quality of great 
importance. Anyone who takes negotiable paper, in the reg- 
ular course of business, while it is not yet due, and has no 
notice of any existing occurrence which affects that paper, and 
tends to lessen or destroy its apparent value, will be protected 
against the consequences of that occurrence. In other words, 
a person thus taking the paper, who is called "an innocent 
holder," or a "bona fide holder," is entitled to rely upon it as 
meaning what it says, without any allowance or qualification. 
The only risk he assumes is that of the solvency of those 
parties whose names are on the paper, and on the faith of 
whose promise he takes it. 

This is a point of the utmost consequence, because on it 
depends the credit and utility of the whole system of commer- 
cial paper. An illustration will help to explain what " nego- 
tiability " means. 



BILLS AND NOTES. 



55 



* * * Andrews makes a promissory note, for the sum of $800, pay- 
able in six months to Bowman. Bowman endorses it to Chad wick, and 
Chadwick endorses it to Davenport, who holds it. In the first place, when 
it falls due, and Davenport presents it to Andrews, if Andrews does not 
pay the $800, Davenport can sue him upon the note ; that is, he has a 
legal cause of action upon the note against Andrews, although he never 
had any direct dealing with him, and perhaps never saw him before. In 
the second place, if it so happened that Andrews had paid Bowman $300 
on account of this note, or had made a payment to Chadwick while he 
held it, Davenport could still sue Andrews for the whole $800 ; because 
he knew nothing about the part payment. When Andrews made this part 
payment, he should have had the same endorsed on the back of the note, 
and then Davenport, when he got the note, would have seen that part had 
been paid, and would have taken the paper " with notice." 

There are some kinds of paper which pass from hand to 
hand, very much like the promissory note of which we have 
spoken, but which are destitute of the protection which made 
that note so valuable. To this latter class belong bills of lad- 
ing and warehouse receipts, which are said to be "quasi- 
negotiable." In other words, the person who pays value for 
a bill of lading or a warehouse receipt, which is regular on its 
face, cannot safely rely on that apparent regularity as he could 
on the regularity of a promissory note. If the promissory 
note already mentioned had been overdue when Davenport 
took it, then Andrews could have used the $300 as an off-set 
to the $800; and he would only have been obliged to pay 
$500 to Davenport. Commercial paper, which is overdue, 
carries on its face a notice that something is a little out of 
order; because the date suggests the question : " Why has not 
payment been made on this?" 

Let us inquire into the nature of bills of exchange, promis- 



56 BILLS AND NOTES. 

sory notes, bank notes, bank checks and negotiable instru- 
ments generally. 

A promissory note is a simpler tiring than a bill of exchange; 
but a bill of exchange has a longer history. Several hundred 
years ago, the merchants of Genoa and Florence and Venice 
had extensive dealings in other great European cities. These 
dealings consisted, in part, of exchange of goods at current 
prices; as, where a man in Genoa would send a quantity of 
velvet to London, and get back the value of it in cutlery. It 
was not always convenient to do business by this process of 
barter ; and it was frequently necessary to send large sums of 
money in the shape of coin, from one place to another. In 
those days, people would sometimes travel in companies, and 
hire an armed convoy to protect them against robbers. It 
would occasionally happen that some one in London (let us 
say) wanted to go to Genoa, and had to supply himself with 
money for the journey there and back, and for such purchases 
as he intended to make in foreign parts. At the very same 
time, there might happen to be a London merchant who had 
sent goods to Genoa, and was not yet paid for them. Putting 
these two things together, it is evident that money would have 
to go from London to Genoa, and money would have to come 
back from Genoa to London. This would involve a good 
deal of unnecessary and dangerous transportation of gold and 
silver; unnecessary, at least, if any means could be found of 
transacting affairs in a more convenient manner. So the fol- 
lowing plan was devised : the man who was going from Lon- 
don to Genoa handed over so much coin to the London mer- 
chant, who was the creditor of the Genoa merchant, and took 
with him a letter from the London merchant to the Genoa 



BILLS AND NOTES. 57 

merchant, requesting the latter to pay him a sum of money 
equivalent to the coin which he had deposited in London. 
By this means, all parties were accommodated; the London 
merchant received payment, which he wanted ; the Genoa 
merchant was relieved of the trouble and risk of sending coin 
to London ; and the traveler was relieved of the trouble and 
risk of taking coin from London to Genoa, since all he had 
to take was a piece of paper, — a letter, in fact, which could 
not be very well used by any one except himself. 

In mastering the details of this simple transaction, the 
reader will get a fair notion of the origin of commercial 
paper, and will be prepared for the following definitions : 

A bill of exchange (which is frequently called a draft) is a 
written order or request by one person to another for the pay- 
ment of money at a specified time, absolutely, and at all 
events. This is the language of Mr. Justice Bailey, and is ap- 
proved by Chancellor Kent. 

There are usually three parties to a bill of exchange, from 
the outset. The one who writes it is called the drawer; the 
one to whom it is written is called the drawee; and the one 
who is to get the money, or, in other words, in whose favor it 
is drawn, is called the payee. 

In the example already given, the London merchant was 
the drawer, the Genoa merchant was the drawee, and the 
traveler was the payee, 

A promissory note begins its career with two parties only. 
It is defined as a written engagement by one person to pay 
another, therein named, absolutely and unconditionally, a 



58 BILLS AND NOTES. 

certain sum of money, at a time specified therein. This is 
the language of Mr. Justice Story. Chancellor Kent calls it 
a written promise for the payment of money at all events. 

Let us now examine a bill of exchange and a promissory 
note, and see what differences there are between them. 

Here is a bill of exchange : 

$250.00. Baltimore, Md., January 16, 1893. 

At sixty days' sight, pay to the order of Nathan S. Bradley, two hundred 
and fifty dollars, and charge the same to the account of 
To Austin, Barlow & Co., \ 

San Francisco, Cal. J John M. Watkins. 



And here is a promissory note : 

$300.00 Chicago, 111., Jan. 16, 1893. 

Three months after date, without grace, I promise to pay to Samuel Fin- 
ley, or order, the sum of three hundred dollars, with interest at the rate of 
eight per cent, per annum from date until paid. 

Joseph Greenleaf. 

It is clear at a glanc£ that the bill of exchange is a request, 
while the other document is a promise; and that the bill of 
exchange has one more party to it than the promissory note. 
The bill, however, might have read "Pay to myself, or order," 
instead of "'Pay to Nathan S. Bradley, or order." In that 
case, the drawer and the payee would have been the same per- 
son, and there would have been only two parties to the bill, 
namely, Mr. Watkins, and the firm in San Francisco. 

The words ■" value received" have been introduced into 
the foregoing forms. They mean that the paper has a basis 
in some actual obligation to pay money: that is, that it was 
not executed gratuitously ; but, as the law presumes this to 



BILLS AND NOTES. 59 

have been the case, the words "value received," or "for 
value received," are not necessary, though they are generally 
introduced into commercial paper. 

The bill of exchange here drawn up says, " Nathan S. 
Bradley, or order;" and the promissory note says, "Samuel 
Finley, or order." This means that payment is to be made 
to the person named, or to any other person whom he may in- 
dicate. The mode of indicating that other person is by en- 
dorsement. 

The words "or order" make the paper negotiable. It can 
pass from hand to hand by endorsement and delivery. If 
the words had been "or bearer," then the paper would be 
negotiable by mere transfer, without endorsement, like a 
greenback, which is payable to bearer, and never endorsed. 

By endorsement, is meant signing one's name across the 
back of the paper. When the name only is signed, the en- 
dorsement is said to be in blank. When the endorser specially 
indicates the person to whom he transfers the paper, the en- 
dorsement is said to be special, or in full. In the case of the 
promissory note here given as an example, if the payee were 
merely to write his name across the back of the note, thus, — 
Samuel Finley, that would be a blank endorsement. If he 
wanted to turn the note over to Benjamin Woodhouse, and 
wrote across the back, "Pay to the order of Benjamin Wood- 
house" and under that "Samuel Finley" the endorsement 
would be special. 

The act of endorsement does not transfer the paper. To 
produce that result, there must be a delivery of it to the per- 
son who is to take it, or to some one else on his account. The 



60 BILLS AND NOTES. 

mere act of delivery may sometimes be a sufficient transfer, 
without any endorsement. This is when the paper is payable 
to bearer, or when the last endorsement is in blank. If Mr. 
Greenleaf's note to Mr. Finley had been merely endorsed 
"Samuel Finley" and so handed to Mr. Woodhouse, Mr. 
Woodhouse could then lawfully transfer it without any further 
endorsement, to any person who might be willing to take it 
in that shape. Usually, however, in such a case, the person 
taking the note or bill requires the party from whom he takes 
it to add his own endorsement. The refusal of the latter to 
do this might render the man about to take the paper sus- 
picious, and hinder the transfer of it. 

Commercial documents ought not to be dated, signed or 
fransfeired on a Sunday; but, if a bill or note be dated on a 
week-day and delivered on a Sunday, or dated on a Sunday 
and delivered on a week-day, it w T ill be good in the hands of 
an innocent holder. Public sentiment varies considerably on 
the Sunday question, and local statutes and judicial opinions 
vary with it. In New England, especially, the Sabbatarian 
principle has been enforced with rigor ; but the tendency in 
the United States is toward liberality, though bargains of a 
strictly mercantile character, made on Sunday, are generally 
voidable. 



CHAPTER VII. 



BILLS AND NOTES, CONTINUED. 



Negotiability, as we have seen, is a highly valuable quality 
of commercial paper. In order that such paper may circulate 
with freedom among business men, and supply the want for 
which it was created, the man who takes it in the regular 
course of business is largely protected. A note or a bill is 
presented to him in place of money. Acting in good faith, 
he examines it. He sees the names on it to be those of citi- 
zens in whom he has confidence. He perceives its general 
form to be regular. He notices that it is not yet due. The 
law does not require him to look any further. If it did- — if 
he had to take special precautions against all sorts of latent 
defects in the instrument — this would greatly embarrass the 
circulation of commercial paper, and cause public incon- 
venience. 

In order that a bill or a note should be fully negotiable, 
and carry this protection with it, several points must be 
closely observed. The payment for which it calls must be in 
money ; not in anything else. If, for example, a note con- 
tains a promise to pay Charles Manning, or his order, on a 
certain day, one ounce of gold dust, or a hundred bushels of 
wheat, this is, in one sense, a promissory note, and Charles 
Manning can transfer it by endorsement; but the person who 



62 BILLS AND NOTES. 

takes it is not relieved from such possible defects in connec- 
tion with it, as have been already mentioned. Paper of this 
kind is unusual, and public policy does not call for its special 
protection. 

Further, the amount must be certain. A promise to pay to 
the payee, or his order, as much money as a third party might 
find to be due by the maker to the payee, would not satisfy 
this requirement. If the amount, as written out in words, 
should differ from the amount, as noted in figures in the cor- 
ner of the paper, the statement of it in words is considered 
as being the true one. Rulings on this point are to the effect 
that the figures in the corner are a mere memorandum, for 
the purpose of convenience. 

The time of payment must also be certain. A promise to 
pay $50 "as soon as I am able," or "as soon as I am in busi- 
ness for myself," will not be enough. If the reference be to 
some event which must happen sooner or later, that has been 
held to suffice; as, for instance : "I promise to pay $50, 
upon the decease of Jas. B. Drake." If no time of pay- 
ment be named, the note or bill is held to be payable on de- 
mand, like a bank note. 

The place of payment must be certain, if one be named. 
If no place be named, the instrument will be payable at the 
residence or place of business of the person who has promised 
to pay it. Of course, there must be certainty with regard to 
the persons by and to whom payment is to be made. 

It is not meant that a note or a bill, which happens to be 
uncertain on some point on which it ought to be certain, is 
therefore commercially worthless. The paper may be useful 



BILLS AND NOTES. 63 

for more than one reason, although thus defective ; but the 
feature of uncertainty deprives it, if not exactly of its nego- 
tiable character, at any rate of that peculiar element of pro- 
tection and security which, as we have seen, accompanies the 
regular transfer of commercial paper. 

One more element of certainty is requisite : the promise or 
request must be positive and unconditional. A promise to 
pay to Valentine Stubbs, or order, on a certain day, $250, 
"provided a certain mortgage is paid and cancelled," will 
not answer this description. When the condition is fulfilled, 
by payment and cancellation of the mortgage, the promise is 
undoubtedly binding; that is (See Chapter I.), if it rested on 
some "consideration," cr equivalent. Still, although good in 
this way as a promise, it is not like an out and out order to 
pay to Valentine Stubbs, or order, at a certain date, $250. A 
promise to pay a certain sum of money, when the promisor's old 
mill is sold, is equally defective. It rests upon a condition, 
and the condition is such as to create an uncertainty in the 
time of payment as well. The old mill may never be sold ; 
and, if it should be, no one can tell when, until the sale 
occurs. 

The promise of payment must be absolute, not conditional; 
the payment must be in money, and the sum of money must 
be definite; the time of payment, and the person who is to 
receive payment, must be certain, and also the' place of pay- 
ment; though, as we have seen, it is not strictly necessary 
that time and place should be named. 

In case of a promissory rote, the promise is made by the 
person who signs it, and he is called the maker oi it. In case 



64 BILLS AND NOTES. 

of a bill of exchange, the person who signs it is called the 
drawer, and the promise is made by the person on whom it is 
drawn, the drawee. When he consents to the request, he 
writes the word "accepted," followed by the date, across the 
face of the bill, and adds his signature, also across the face. 
He is then called the acceptor, and is said to be "primarily 
liable" upon the bill, just as the maker of a note is "primarily 
liable" upon it. This means that the promise to pay is his in 
the first instance, and that the holder of the bill, when it 
falls due, should go to him for payment. 

Every one who puts his signature to commercial paper 
ought to write in ink, and to set down his full name, or his 
ordinary signature ; but a signature in pencil is legally bind- 
ing, and so is the signing of one's initials. If a person can 
not write, he may make his mark with two crossed lines, and 
have some one who can write set his name down for him. It 
rarely happens, however, that a person who is unable to write 
becomes a party to commercial paper. 

Sometimes, one man will authorize another to sign as his 
agent. When this is the case, special care ought to be taken, 
lest the agent, by signing wrongly, should assume a personal 
responsibility which he does not intend to undertake. If 
Solomon Miller empowers Stephen Jackson to sign his name 
for him on a bill or note, the signature should be: "Solomon 
Miller,/^ Stephen Jackson, agent." If Jackson were merely 
to sign "Solomon Miller," that might do; but an incon- 
venience would arise, if some one happened to notice that 
the signature was not in Miller's own handwriting, and sup- 
posed it to be a forgery. 



BILLS AND NOTES. 65 

A similar rule applies where a guardian, executor, adminis- 
trator or trustee has to deal with commercial paper. It is not 
prudent for him to sign his name, and put the word " execu- 
tor," or "trustee," after it. Many persons, not knowing 
this matter properly, have made themselves personally liable 
on the paper; a thing which they had never dreamed of do- 
ing. Whoever acts in such a capacity, and has occasion to 
make, or endorse, or accept a note or a bill, as the case may 
be, should add to his name a full description of the character 
in which he acts; as, John Grafton, executor of the last will 
of George Humphrey, deceased;" "James Morehead, 
Thomas Griffin, trustees of the Second Presbyterian Church, 
of Lebanon, Kansas." A note drawn thus: "We, the trustees 
of the Methodist Episcopal Church in Lexington, promise to 
pay &c," and signed merely by the names of the trustees, 
was once held to bind them individually. The Supreme 
Court of the United States, it is true, has said that it would 
be contrary to justice and truth to enforce so severe a rule in 
cases where the signer was fully known by the other parly to 
be acting in a representative capacity ; but the existence of 
danger at this point will prompt a thoughtful man to use 
special precaution, stating clearly the function in which he is 
acting. If he is making a note, under such circumstances, he 
should introduce the description into the body of the note, 
and also add it to his signature. By so doing, he will remove 
all opportunities of controversy on the subject: 

The practice of affixing one's signature by means of a hand- 
stamp is open to serious objection. An impression made in 
this way may be a valid signature, though even this is not en- 
tirely clear. Let us suppose it to be good, and see what dan- 



66 BILLS AND NOTES. 

ger follows. Any dishonest person might manufacture com- 
mercial paper in the name of the owner and user of the stamp, 
and either steal the stamp itself, or have a duplicate of it 
made, and so supply the requisite signature. Under any cir- 
cumstances, the hand-stamp either does not produce a valid 
signature, or it places its owner in constant peril. If a man 
were to go on using such a stamp in the way here suggested, 
it is probable that his signature, so impressed, would be suf- 
ficient to charge him with the consequences of signing, and it 
would make no difference, as to persons not having notice of 
the fact, whether the mark came upon the paper regularly or 
fraudulently. It is therefore important that the signature 
should be written, and not merely stamped. This observation 
applies to signatures generally, whether on commercial paper 
or elsewhere. It is sometimes convenient, however, where 
firms or companies conduct a large correspondence by means 
of clerks, to use a hand-stamp with a blank space for the name 
of the actual signer. Such use, however, ought to be re- 
stricted to ordinary letter writing. For similar reasons, let- 
ters written on a typewriter should always be signed by hand. 

It is always unnecessary, and it may sometimes be mischiev- 
ous, to add a seal or a scroll to a note or bill. In many of 
our States, such an addition will impair the negotiable char- 
acter of the instrument. 

A practice has become rather common in the United States, 
during the last quarter of a century, of inserting a clause in a 
promissory note, providing that in case of an action at law to 
enforce payment, the maker will pay so much money in addi- 
tion — generally a percentage on the amount of the note — to 



BILLS AND NOTES. 67 

cover attorneys' fees. As to the validity and effect of such a 
clause, the courts of different States are completely at variance. 
In Michigan and Ohio, for example, such a provision is con- 
sidered wholly bad, on the ground that it may afford a cover 
for usury. In New York and Pennsylvania, it is regarded as 
impairing the negotiability of the paper, by rendering the 
amount of the debt uncertain. In Illinois and Iowa, the pro- 
vision in question is held to be good and valid. In Oregon, 
there may be a stipulation for "a reasonable sum as attorneys' 
fees." In view of the existence of such remarkable differ- 
ences of judicial opinion, the business man ought to ascer- 
tain how the law stands in the State in which he does business, 
before introducing such a clause into any negotiable instru- 
ment. The same remark applies with at least equal force to 
clauses which contain a "warrant to confess judgment," in 
case the note is not paid at maturity, or a waiver of what 
are called "stay" and "exemption" laws. Notes which em- 
body clauses of this description are sometimes popularly 
called "iron -clad." 

It is usual for commercial paper to be made and transferred 
upon a "consideration." In other words, a man does not gen- 
erally make a note, or accept a bill, or part with a note or a bill 
belonging to him, made or accepted by some one else, with- 
out receiving, or having received, some equivalent. Thus, 
when a bill is drawn by Lawson on Meredith, in favor of Nor- 
ton, Lawson says in effect to Meredith: " You owe me so 
much money. Instead of paying it to me, pay it at such a 
time to Norton, whose debtor I am;" and Meredith, when he 
accepts the bill, says in effect to Lawson : "Yes, I do ow 7 e 
you so much money, and I will pay it over to Norton at 



68 Bills and notes. 

such a time, as you request." If the bill be payable to 
Norton, or his order, and Norton transfers it by endorse- 
ment to Overton, he says in effect to Overton : " I owe you 
so much money, and I pay you in this manner." The 
creation or transfer of commercial paper is almost always con- 
nected with a debt or a loan. This being the case, the law 
presumes every creation or transfer of a bill, note or check, 
to have been for value. We have already seen that the exist- 
ence of such a presumption renders the words "value received" 
unnecessary. 

Occasionally, a person will put his name on commercial 
paper to oblige or accommodate some one else, when he him- 
self gets no benefit. Paper thus signed is called accommoda- 
tion paper. The man who said he could not see, for the life 
of him, how the mere writing of his name on a slip of paper 
could make him liable for a sum of money, must have been 
an accommodation acceptor or endorser. Let us consider how far 
a person is liable, who signed in this gratuitous manner. Why 
did he put his name on the paper ? The obvious answer is, 
that he did so to give the paper credit, so that it might be 
transferred more readily than if his name were not written 
upon it ; and this answer furnishes the key to his position. 

So far as those persons are concerned, who have taken the 
paper for value, seeing his name on it, and naturally relying 
on what they saw, he is not entitled to set up the fact that he 
wrote his name there merely for the accommodation of some 
one else. This is rendered still more plain, when we go back 
to the rule already stated, as to the protection of one who 
takes commercial paper in the ordinary course of business. 



bills and Notes. (>9 

If the accommodation party could defend on the ground 
already indicated, every one taking commercial paper would 
be obliged to inquire beyond what appears on its face ; and 
this inconvenience would go far to defeat the purpose for 
which such paper exists. 

So far, at least, as the person is concerned with whom the 
accommodation party at first dealt, and whom he accommo- 
dated, the case is different. An agreement (See Chapter I.) 
is not binding, when the transaction is all on one side : the 
one party getting all the benefit of it, and the other getting 
nothing. So, if Mr. Atkinson, not being Mr. Bakewell's 
creditor, were to draw a bill on Mr. Bakewell, thus : " Pay to 
myself, or order." and Mr. Bakewell were to accept the bill in 
order that Mr. Atkinson might negotiate it and raise money 
on it, if Mr. Atkinson did thus negotiate it, the holder could 
collect the amount from Mr. Bakewell when it came due ; 
but it would be manifestly unfair to allow Mr. Atkinson him- 
self, if he should go on holding the bill, and should not 
transfer it to anybody else, to claim anything from Mr. Bake- 
well upon it, simply because Mr. Bakewell was not his debtor. 
This example affords a general illustration of the liability of 
"accommodation parties." 

Where a note contains no mention of interest, it begins to 
bear interest at the ordinary legal rate, on the day on which it 
becomes due. Where it is a promise to pay so much money, 
with interest, the debt carries interest from the day on which 
the note is dated. It is customary to state, in a note, the rate 
at which interest shall be calculated, when a different rate from 
the ordinary rate is bargained for. In this case, the note will 



70 BILLS AND NOTES. 

read, "with interest from date until paid at the rate of — per 
cent, per annum;" or "with interest from maturity until paid 
at the rate of — per cent, per annum." The subject of inter- 
est is generally regulated by law, a legal rate being fixed. 
Parties may always bargain for less than the fixed rate, and, in 
some States, for more. In Oregon, for example, the ordinary 
rate is 8 per cent.; but the debtor may agree to pay as much 
as 10 per cent. In some States, as California, Washington 
and Colorado, the parties may bargain, in writing, for any 
rate they choose. 



CHAPTER VIII. 



BILLS AND NOTES, CONTINUED. 



The reader is now familiar with the essential parts and 
features of commercial paper. We have to consider, further, 
the proceedings of acceptance, transfer and collection. 
Transfer may sometimes be effected by mere delivery, with- 
out any endorsement by the person transferring. This is 
when the paper is expressly payable to bearer, or when the 
previous endorser has endorsed in blank, and so made it pay- 
able to bearer. Such a transfer, if satisfactory to the taker, 
is perfectly good. The holder, who passes it to him by mere 
delivery, does not assume any risk with reference to the future 
solvency of those persons who ought to discharge the debt. 
He only undertakes and guarantees that the signatures on the 
paper are genuine, the document legally binding, and that he 
knows of no circumstance which renders it commercially 
worthless. 

The liability of an endorser is much more extensive than 
this ; and it has been stated as follows, on very high authority: 
he agrees with the person to whom he transfers the paper, and 
with every subsequent holder of it, to bind himself as to these 
particulars: (i) that the instrument, and all previous signa- 
tures on it, are genuine; (2) that he himself has a good title to 
it; (3) that he is competent to bind himself in such a contract; 



72 BILLS AND NOTES. 

(4) that the maker or acceptor is competent to bind himself 
to the payment, and will, on due presentment, pay the amount 
at maturity ; (5) that if, when duly presented, it is not paid, 
then he, the endorser, upon due and reasonable notice being 
given him of this fact, will pay it himself. By the word ma- 
turity is meant the time when the instrument falls due. Of 
these five statements, the last is of the greatest importance. 

A note or a bill, which is not expressed as being payable 
"on demand," or "at sight," is said to mature, or come to 
maturity, at the expiration of three days after the day named 
therein for payment. This is the general rule, though modi- 
fied in some States by statute. These days are called days of 
grace; and, when they are gone, the paper is ovetdue. When 
the last day of grace falls on a Sunday, or a public holiday, 
presentment for payment should take place on the previous 
working-day, unless otherwise provided by statute. 

One who transfers by endorsement is at liberty to enlarge 
or restrict his liability, by using proper words, in addition 
to his signature. Thus, if he writes "demand and notice 
waived,'" or adds a guaranty, he assumes a responsibility 
heavier than the law would otherwise lay on him. On the 
other hand, if he appends the words "'without recourse" to 
his signature, or any words to the same effect, he lessens his 
responsibility. By waiving demand and notice, he says, in 
effect, that if the party primarily liable does not pay, then he 
himself will do so unconditionally. By adding a guaranty, 
he assumes practically the same position. By writing the 
words "without recourse ," he notifies all who may thereafter 
take the paper, that they must not look to him for payment, 
if others, who ought to pay, fail to do so. 



BILLS AND NOTES. 73 

These additions do not in any degree impair the negoti- 
ability of the instrument. They only affect the liability of the 
endorser. He can render the instrument no longer negoti- 
able, if he choose; as, for example, by writing over his signa- 
ture, " pay to A. B. only." This is called a restrictive en- 
dorsement. "A. B..," in such a case, cannot transfer to 
any one else, but must hold the paper until it matures. 

It frequently happens that a person holding a bill or note 
lives in one place, and the document is payable elsewhere, so 
that he asks some one in the latter place to make demand for 
him. The proper plan in such a case is to endorse, and add 
the words "For collection.''' The effect of this is to check 
the further transfer of the paper; because any one to whom it 
may be offered can see that it was the business of the person 
presenting it to him to collect it on the endorser's account. 
Collections of the kind now spoken of are usually made 
through banks. 

Negotiable paper cannot be properly endorsed away for less 
than the whole amount due. If Abraham Vernon happens to 
hold some one's note for $350, and himself owes Thomas 
Walters $200, it will be an awkward and unbusiness-like trans- 
action for him to endorse in the following fashion : " Pay to 
Thomas Walters $200 of this. Abraham Vernon." Such 
a transfer will give Walters a right to hold the note ; but it 
will check its negotiability, and the proceeding will cause 
embarrassment, if not loss. The maker of a note is not 
bound to pay a part to one person, and a part to another. 
He is only bound to have the amount ready, as a whole, when 
it falls due; and he can properly ignore any arrangement for the 
division of it into parts. It is not right that any such divis- 



74 BILLS AND NOTES. 

ion should be attempted. Vernon ought to have endorsed the 
note to Walters as a whole, and arranged specially about the 
balance of $150, or he should not have endorsed it to him. 

Let us now suppose that Vernon did make some satisfactory 
arrangement about the $150, and endorsed the note to Wal- 
ters, writing on the back of it, " Pay to the order of 
Thomas Walters. Abraham Vernon;" and that Walters 
wrote his name under that, and handed it to his grocer in 
part payment of an outstanding account, and that it fell due 
a day or two afterwards. Of course, the grocer, holding the 
note, ought to present it to the maker of it in the first place, 
because the note is his direct promise to pay, and he is 
"primarily liable" upon it. If the maker should refuse to 
pay, the holder could demand payment either from Vernon, 
the first endorser, or from Walters, the second endorser. If 
Walters had to "take up" the note, he would be entitled to 
recover the amount either from the maker, or from Vernon. 
If he could not recover it from either of them, this would not 
be from any defect or flaw in his legal right, but because of 
their insolvency. 

The drawer of a bill occupies a place which is very similar 
to that of the payee and first endorser of a note. A bill is 
originally a request to pay; and the drawee, when once he 
responds to that request by accepting the bill, makes the 
instrument his promise, just as much as if he had given a 
promissory note to the drawer of the bill, who (as we have 
seen) is usually his creditor. The drawer also has a hand in 
the creation of the bill, and is usually liable in the second 
place. All parties whose names are on the paper without some 



BILLS AND NOTES. 7 

qualification, are liable to the holder • and each of them 
has undertaken to protect those who come after him, as 
we saw when we considered the responsibility of an endorser. 
So then, upon a note, the parties are liable, each to his 
successors, in the following order: (i) the mak^r, (2) the 
payee and first endorser, (3) the second endorser, and so on. 
In case of a bill, the order is this : (1) the acceptor, (2) the 
drawer, (3) the payee and first endorser, (4) the second en- 
dorser, and so on. 

Circumstances may occasionally justify the acceptor in accept- 
ing conditionally. For example, he may, perhaps, at present 
have no funds in hand on account of the draw r er, and yet he may 
have reason to expect that funds will come in, by the arrival and 
sale of a cargo of goods, or otherwise. In such a case, his safe 
plan is to express the condition in writing upon the bill, 
either close to his signature, or in some other convenient place. 
The payee is not bound in law to take a conditional accept- 
ance, unless he receives the paper from the drawer with that 
understanding. An acceptance so unusual as this will, of 
course, embarrass the negotiation of the paper: a remark 
which applies in a greater or less degree to all special addi- 
tions, restrictions or comments, which are made a part of it. 

As the payee is not bound to take a conditional acceptance, 
so he is not bound to take an acceptance for a part only of 
the sum named ; but such an acceptance, if taken, is good as 
far as it goes. 

Since a bill of exchange is generally payable at a future 
date, the drawee is called upon first to promise to pay, which 
he does by accepting it, and afterwards to fulfill his promise 



76 BILLS AND NOTES. 

by actually making payment. It is possible that he may either 
refuse to acceptor refuse to pay when he has accepted. In 
either of those events, it is customary for the payee to "pro- 
test" the bill. In other words, a bill may be protested for 
non-acceptance or for non-payment ; in which term we include 
a partial acceptance and a part payment. This proceeding, 
which is called "protest, " will be explained after we consider 
the question of demand. 

As soon as a bill or a note falls due, or "matures," the 
holder should present it to the acceptor or maker, and demand 
payment. It is not the acceptor's business, or the maker's 
business, to go and find the holder. This is clear enough, 
when we consider that the document may have been trans- 
ferred by endorsement, so that the acceptor or maker cannot 
tell who holds it ; while the holder of a bill always knows who 
accepted it, and the holder of a note always knows who made 
it. 

The holder of a bill, therefore, must present it to the 
acceptor, when it falls due, and demand payment. Merely to 
mail it to him would be irregular, unsafe and unbusiness-like. 
The holder himself, or his clerk, or agent, should personally 
present it, and make demand. If the bill should be payable 
at a distance from the place where the holder lives, he ought 
to endorse it, "For collection," and hand it to his banker for 
that purpose. The demand ought to be made at the accept- 
or's place of business, unless another place of payment is 
specified in the bill. If the acceptor has no place of business, 
at his residence ; and, if he is not to be found at his place of 
business or at his residence, as the case may be, a demand 



BILLS AND NOTES. / < 

made on the person in charge is generally sufficient, because 
it was the duty of the acceptor to expect the demand, and to 
provide for it. If, however, the acceptor has changed his ad- 
dress, and can be found by any one who takes the trouble to 
inquire for him, it will not be enough for the holder to make 
demand at the old address On the other hand, where the 
acceptor has gone away without leaving any definite address, 
the holder need only make a formal demand, without further 
inquiry ; as, for example, where the person who opened the 
door said that the acceptor "bad gone West" week before last, 
or that he "had gone down the river without saying when he 
would return." If he had said when he would return, that 
would not mend the matter in the least, because it was his duty 
to have the money ready at the place when the holder called; 
that is, at maturity. 

A bill of exchange is frequently made payable at some par- 
ticular bank. Indeed, in the great centres of commerce, bills 
are generally drawn in this way. In such cases, the holder 
should make demand at the bank named, during business 
hours, or leave the bill in charge of that bank, to be given up 
when payment is made, or hand it to his own banker, who 
will present it for payment at the other bank. If the latter 
bank has closed its doors during business hours, which is a 
token of suspension or insolvency, this amounts to a refusal to 
pay, and the bill is dishonored. 

Should a bill or a note be lost or mislaid, this circumstance 
does not constitute a good reason for neglecting to demand 
payment. The holder, in such a case, ought to make as ac- 
curate a copy of the paper as he can, and present that. The 



78 BILLS AND NOTES. 

acceptor, or maker, from whom payment is demanded under 
such conditions, ought to assure himself that the document has 
not passed into the hands of any other person who has given 
value for it; and he may reasonably delay payment in such a 
case as this, though he cannot lawfully refuse to pay at all. If 
he be quite uncertain what has become of the paper, he may 
decline to pay, unless the party desiring payment will indemnify 
him against loss arising from the accident. The usual method 
of securing indemnity, in this and other cases, is by executing 
a bond with surety. (See Chapter II.) This may be very 
necessary ; for, if the bill or note were payable to bearer, and 
happened to be lost or stolen from the holder, and got into 
the hands of a new holder for value, in the ordinary course of 
business, he having no notice or knowledge of what had oc- 
curred, this new holder could lawfully claim payment, and the 
former holder would be the loser. When a paper of this 
kind is thus lost, an advertisement is sometimes put in the 
newspaper. Such a notice, however, does no good, unless 
the party to whom the bill or note is offered has read or heard 
of the notice. This follows from the protection which the law 
affords, when commercial paper is regularly taken. On this 
account, it is desirable to keep negotiable instruments safely 
locked up, especially when they are payable to bearer, either 
by being so expressed, or by means of a blank endorsement. 

Prompt demand is not essential, so far as the obligation of 
the acceptor of a bill, or the maker of a note, is concerned. 
He is bound to pay, whether demand is made of him on the 
due day or not ; but it is very important as regards endorsers, 
because an endorser undertakes, not that he will pay. at all 



BILLS AND NOTES. t \) 

events if the accepter or maker does not pay, but only that he 
will do so if the acceptor or maker, upon dice presentment at 
the proper time> does not pay, and if he himself (the endorser) 
is duly notified of the dishonor. The acceptor or maker 
assumes a continuous responsibility ; the endorser is responsi- 
ble only upon the performance of the conditions already 
stated. 




CHAPTER IX. 



CONCERNING BIULS, NOTES, ETC. 



We have already seen that, under certain circumstances, a 
bill "goes to protest ;" and that is, when the drawee refuses 
to accept, or when, having accepted, he declines or is unable 
to pay. Practically, however, there is seldom any protest for 
want of acceptance. It may be said, especially as to inland 
bills, that the protest of them for non-payment, in the absence 
of any statute requiring it, is rather convenient than necessary. 
By an inland bill, is meant one which is payable in the coun- 
try or state in which it is drawn. A bill drawn in Pittsburg 
on Philadelphia is an inland bill ; but one drawn in Boston on 
Baltimore, or in New York on Paris, is a foreign bill. Prom- 
issory notes are often protested for non-payment, although 
this proceeding is not required by law. It forms no part of 
the condition of liability, and the omission to protest furnishes 
no defense to an action on the note or bill. The value of 
the act of protest consists in its affording good evidence of 
the fact of dishonor, and of the giving of notice thereupon. 

Let us now examine the formality of the act of protest. The 
holder has made demand, and has been refused ; or, it may be, 
he has found the house, or office, or bank closed, although he 
called at a suitable hour. He now goes to a notary public, 
in whose hands he places the bill. The notary goes to the 



BILLS, NOTES, ETC. 81 

place, and makes demand in the holder's name. Being re- 
fused, he makes a solemn statement, under his hand and offi- 
cial seal, of the facts of presentment, demand and refusal. 
This statement ought to contain an exact copy of the instru- 
ment as it is, including all endorsements. The notary does 
not certify that the holder made demand, but that he himself 
made it, and was refused. Immediately upon the dishonor of 
the bill, notice should be served on the drawer, and on every 
endorser of it. Such notice is equally necessary when a note 
is dishonored, in order to fix the liability of the endorsers. 
In many States of the Union, the statutes make it the notary's 
duty to serve these notices, in case of protest; and he is entitled 
to a fee for his trouble, usually amounting to two or three 
dollars for the protest, with something extra for each notice 
served by him. 

The acceptor of a bill may live in the country, where a 
notary cannot be easily found. In that case, any responsible 
person may make the protest. The usual practice is to select 
for that purpose some well-known householder in the neighbor- 
hood. The person thus supplying the place of a notary ought 
to fulfill the notary's office as accurately as he can. He should 
make the demand, and note the facts of presentment, demand 
and refusal, under his own hand and seal, annexing a copy of 
the instrument, and stating that he acts in the absence of any 
accessible notary. 

Inasmuch as prompt notice to an endorser is necessary, 
that he may be held liable, the holder ought to see that every 
endorser gets prompt notice, either from himself or from the 
notary ; and, while a notice by word of mouth is allowed in 



82 BILLS, NOTES, ETC. 

some jurisdictions, such a notice is unsafe and unbusiness-like 
at the best. The notice ought to be in writing • and a copy 
of it ought to be preserved. It ought to describe the instru- 
ment in such a way as to identify it ; to say that, on due pre- 
sentment, at such a date, payment was refused by the acceptor 
or maker, as the case may be ; and to inform the endorser 
that the holder now looks to him for payment. It is conven- 
ient to add a memorandum of the place where the bill or note 
is to be found. 

Let us now suppose the case of a bill of exchange for $900, 
drawn by M. C. Moulton on N. H. Nevitt, payable to Oliver 
Oglethorpe, or order, six months from January 10th of the 
present year, and accepted by Nevitt. Oglethorpe has written 
his name across the back, and has passed it on to A. L. Parker, 
who holds it. The bill falls due on July 13th, and is pre- 
sented by Parker to Nevitt on that day, and dishonored; and 
Parker has gone to a notary public, and the bill has been pro- 
tested by him. Parker now looks to Oglethorpe, from whom 
he took the bill, and also to Moulton, who drew it. Both of 
these men ought to be immediately notified. The following 
would be a good notice, addressed to Oglethorpe, so far as he 
is concerned : 

Cincinnati, Ohio, July 13, 189.— 

Oliver Oglethorpe, Esq., 

496 Main St., City. 

Sir : 

A certain bill of exchange, now in my possession (or, now in the pos- 
session of such and such a bank, as the case may be), drawn by Mr. M. C. 
Moulton on Mr. N. H. Nevitt, in favor of yourself, for the sum of nine 
hundred dollars ($900), payable in six months from the 10th of January 



BILLS, NOTES, ETC. 83 

last, and by you endorsed to me, was duly presented by me to Mr. Nevitt 
this day, and payment was refused. Please take notice that I look to you 
to discharge the same. 

Yours truly, 

A. L. Parker. 

The student can easily draw up a corresponding notice to 
Mr. Moulton, observing the facts, and making the necessary 
alterations. He will see that this short letter is specific as to 
every point which the notice ought to include, and that its 
terms are positive. 

The notice must be served promptly. The holder, under 
ordinary circumstances, has the remainder of the day on which 
the act of dishonor took place, and the whole of the next 
working day, in which to serve it; and, if any endorser has 
changed his address, so as to make it difficult to find him, a 
further reasonable time will be allowed, so far as his case is 
concerned. If the notice is served at the endorser's office, it 
should be during ordinary business hours ; if at his residence, 
then before the usual time at which people retire for the night. 
If the endorser lives in another city or town, the notice ought 
to be sent, at latest, by the last mail leaving the postoffice 
which is nearest the holder's address, on the working day next 
following the day on which the acceptor or maker refused pay- 
ment. It is sometimes provided by statute that service with- 
in a distance of one 01 two miles shall be personal; that is, 
that the holder or his agent must call on the endorser and 
notify him. 

As a general rule, the service ought to be personal, when the 
holder and endorser live in the same place; although a notice 



84 BILLS, NOTES, ETC. 

sent by mail, and actually received, will be good. When the 
holder and the endorser live in different places, the holder 
does all that the law requires of him if he sees that the notice 
is correctly addressed, sufficiently stamped, and duly mailed. 
II the letter is never delivered, or is delivered after some 
delay, still the notice is legally good. There are cases in 
which an endorser is accustomed to get his letters at two or 
more separate offices, and then it is a wise precaution to notify 
him at each place, though a notice addressed to the office 
where he usually gets his business mail will generally be suffi- 
cient. It may be useful, however, to observe that in all cases 
where a notice has to be given, it is better to overdo the mat- 
ter than to run the slightest risk on the other side. A copy of 
the notice should be kept, and a memorandum of the time and 
manner of serving it added. Attention to these precautions 
may prevent a great deal of controversy and annoyance. 

We have now examined the incidents of the ordinary his- 
tory of bills and notes, without paying attention to those curi- 
ous and exceptional occurrences, in connection with such 
paper, which are discussed in learned and expensive law-books. 
If anyone wishes to know, for instance, what has been decided 
concerning irregular endorsements, he should consult Mr. 
John W. Daniel's very excellent work on Negotiable Instru- 
ments, which is published in two large volumes. There are, 
however, some points concerning the alteration of bills, notes 
and checks, which it may be useful to mention here. 

Commercial paper may be altered innocently, or fraudu- 
lently. The person who makes the alteration may be the 
holder of it, or some other party acting without his knowl- 
edge. It is unwise, and it may be dangerous, to make any 



BILLS, NOTES, ETC. 85 

such alteration, or to permit it. If there is a mistake on the 
face of the paper, or if the agreement there expressed is not 
sufficiently full, the alteration or addition should be made by 
the original writer, after notice to all parties concerned. 
Cases have occurred in which the holder has got into trouble 
by making an alteration with a perfectly honest intention. 
The writer of this book knew of an instance in which the 
holder of a promissory note, finding that interest was not 
mentioned, as he believed it should have been, added the 
words, "with interest from date." The consequence was 
that another party to the note, who was unfriendly to him, 
procured his indictment for forgery. He was acquitted, it is 
true, and his character was thoroughly vindicated; but he 
suffered much annoyance and expense and loss of time. 
This should be a lesson to every one not to tamper with a 
negotiable instrument. It has been held that an immaterial 
alteration makes no difference in the validity and effect of 
the document, while a material alteration may make a serious 
difference. By an immaterial alteration is meant one which 
does not change the meaning; and an alteration which makes 
the document say something substantially different from what 
it said at first is called material. For example, the addition 
of the words, "payable in lawful money of the United States," 
would be immaterial, because a debt is payable in that money 
as a matter of course, and the addition is really a piece of un- 
necessary foolishness. It has been further held that the trac- 
ing over of a faded name is immaterial, and the correction of 
an obvious error, and the erasure of words which are useless ; 
but a prudent man will not try experiments of this kind, be- 
cause they may lead to disputes. 



86 BILLS, NOTES, ETC. 

Following out the distinction now laid down, we easily per- 
ceive that an alteration of the time when payment is to be 
made, or of the place where it is to be made, is material ; and 
so is an alteration either increasing or decreasing the amount 
of principal or interest. It makes no difference whether the 
alteration be made by writing, or erasing, or cutting away ; 
in either case, it is equally bad. The Supreme Court of the 
United States has stated the following rule, as well settled 
both in English and American jurisprudence : a material alter- 
ation in any commercial paper, without the consent of the 
party sought to be charged, extinguishes his liability, so far as 
the paper is concerned. If the alteration, besides being ma- 
terial, were fraudulent!}/ made by the holder, the effect would 
be not only to destroy the instrument for all purposes useful 
to him, but to wipe out the debt for which it was originally 
given. 

When a bill, or a note, or a check, which has suffered ma- 
terial alteration, is transferred to a man in the regular course 
of business, without his noticing the alteration, the general 
rule is that he cannot recover upon it from the party primarily 
liable, though he may pursue his remedy against the one who 
transferred it to him, or against other endorsers. Care is 
therefore necessary in taking such paper, to see that it is free 
from alterations. There is one exception, which is of great 
practical value : when the person who first signed the paper 
has left blank spaces upon it, or has otherwise offered an easy 
opportunity of alteration, and the alteration or addition is so 
made that a careful person would not discover it, the maker 
or drawer, as the case may be, will be liable for the amount 
which the paper now represents. For example, when the 



BILLS, NOTES, ETC. 87 

maker of a note left a space between the words one hundred, 
and the word dollars, and it was so changed, without any visi- 
ble difference in the handwriting, as to read one hitndred and 
fifty dollars, the maker had to pay the latter sum ; and where 
a note was written partly in ink and partly in pencil, and the 
words in pencil contained a condition which was to be ful- 
filled before payment should become due, and these words 
were rubbed out, he was obliged to pay the amount uncondi- 
tionally, when the instrument was presented to him by a per- 
son who took it without any notice of this alteration. These 
examples show the great necessity of care in making a note or 
drawing a check. This should be done wholly in ink; and a 
waving line drawn along any blank space. All words and 
figures ought to be very plainly written. 

Whatever has been here said about alterations goes to dis- 
courage them. Even such alterations as the law calls "imma- 
terial'' ought not to be made, and paper which has been 
altered should be refused. 

Our attention must now be directed to certain instruments, 
other than bills of exchange and promissory notes, in which 
description are included coupon bonds, bills of lading, cer- 
tificates of deposit, warehouse receipts and bank checks, with 
one or two other kinds of paper. 

A coupon bond consists of a document under seal, contain- 
ing a promise to pay so much money in so many years, to 
which are annexed a number of small notes called coupons, 
containing promises to pay interest from time to time on the 
principal sum. During the civil war, the United States issued 
large numbers of these coupon bonds, some of which were 



88 BILLS, NOTES, ETC. 

called " Five- twenties/' because they were payable in twenty 
years, and bore interest at five per cent.; and others were 
called "Seven-thirties." Bonds of this description have also 
been issued by individual States, by cities, towns and coun- 
ties, and by companies or corporations of various kinds, both 
in this country and abroad. 

Caution is necessary in dealing with coupon bonds, because 
some of them are completely worthless, and others are worth 
only a small amount. As to this, the quoted market prices 
are a useful guide. United States bonds are not as common 
as they once were, and are likely always to head the list in re- 
spect of security. The bonds of a State have this disad- 
vantage: if the State declines to pay them, there is no means 
of compelling payment, for reasons connected with what is 
called sovereignty. Bonds issued by cities or counties are 
commonly called municipal bonds. A city or a county has 
no power whatever to issue such bonds, unless under legislative 
authority; and the bonds, if issued at all, must be issued for 
public purposes only. In the absence of these conditions, 
they are void and valueless. It follows that any one who 
thinks of paying money for a municipal bond, or receiving 
one as security for a loan, should carefully ascertain whether 
the bond is a valid one or not. Bonds may properly be issued 
to enable a city to construct gas works or water works, to 
erect a town hall, to improve or grade streets, to furnish 
necessary fire engines, and the like. Municipal corporations, 
such as cities and counties, have frequently contributed to the 
construction of railroads which were likely to benefit them, 
by the same means. Bonds so given, under legislative author- 
ity, have generally been held good ; but, inasmuch as disas- 



BILLS, NOTES, ETC. 89 

trous consequences have sometimes followed the creation of 
them, by reason of the rascality of fraudulent projectors on 
the one hand, and fraudulent local officers on the other, a 
provision has been inserted in some State constitutions, pre- 
venting the further creation of any such indebtedness. Bonds 
given by a city or township, to secure a grant or subsidy for 
the location within its limits of a new mill or factory, are not 
good, because this is not properly a public purpose, however 
much the new enterprise might indirectly benefit the place 
and its inhabitants. 

A bill of lading is a written acknowledgment by the master 
or owner of a vessel, that certain specified goods have been 
received on board, and are to be carried and delivered at a 
port named therein, to a person also named therein. The 
sender of the goods is frequently called the consignor, and the 
person to whom they are sent is the consignee. Sometimes, the 
consignment is made to the consignor's own order. The 
term, bill of lading, is frequently, though incorrectly, applied 
to a carrier's receipt where goods are transported by land. 

Bills of lading are transferred by endorsement and delivery. 
The endorsement may be conditional or restrictive, if the 
endorser chooses to make it so. They are, therefore, in a 
sense, negotiable; but the element of security, of which we 
have previously spoken, does not accompany them. A bill 
of exchange, bearing a blank endorsement, is good in the 
hands of a person who takes it regularly, although lost or 
stolen from a prior holder; but a bill of lading is not good 
under similar circumstances. He, therefore, who takes a bill 
of lading by endorsement, ought to acquaint himself with the 
history of it. 



90 BILLS, NOTES, ETC. 

A warehouse receipt, as the name implies, is a document 
acknowledging the receipt of specified goods, which the ware- 
houseman is to deliver to the depositor, or his order. Though 
it differs in some respects from a bill of lading, it resembles it 
in the points already noted. The statutes of some of our 
States deal with warehouse receipts, and the reader should 
consult the statute on this topic, if there be one, of the State 
in which he lives. 

A certificate of deposit is the receipt of a bank for a cer- 
tain sum of money entrusted to it. It is usually equivalent to 
a promissory note of the bank, whereby it undertakes to pay 
so much to the depositor, or his order. Questions concern- 
ing the negotiability of such certificates depend very much on 
the language in which they are expressed. 

A bank note, or bank bill, is the promissory note of the 
bank, payable to bearer on demand, just as a dollar note of 
the United States is the promissory note of the government. 
The value of a bank note depends on the solvency of the 
bank which issues it, unless, as in the case of the currency of 
our "national banks," it be secured by a deposit with the 
Treasurer of the United States, or otherwise. In some States, 
no banks except the "national banks" are allowed to issue 
bank notes. 



CHAPTER X. 



CONCERNING BANK CHECKS. 



A bank check has been defined as follows : it is an order 
upon a bank for the payment of a certain sum of money, 
upon demand, to a certain person therein named, or to his 
order, or to the bearer. It purports to be drawn upon a de- 
posit of funds, which the drawer has placed in the hands of 
the bank. 

A check, therefore, resembles a bill of exchange in some of 
its principal features. It is in form a request, rather than a 
promise. It involves the existence of a drawer, a drawee, 
and a payee ; though here, as in a bill of exchange, the 
drawer and the payee may be the same person. ("Pay to 
myself or order.") On the other hand, a check is almost al- 
ways payable on demand, while a bill of exchange is generally 
payable at a future day. There are no "days of grace " in 
case of a check, though there are in case of a bill of exchange; 
and a man may sometimes very properly draw a bill upon 
another, although the latter at present holds no funds on his 
account, while a check drawn upon a bank in which the 
drawer has no deposit, and which has not promised credit, is 
generally a fraud from the beginning. So there are points of 
resemblance, and also points of difference, between checks 
and bills. 

A check is usually dated on the day on which it is drawn; 
but, occasionally, it bears a different date. When a check is 



92 BANK CHECKS. 

actually drawn, and handed over to the payee, on the 15th day 
of June, it makes little difference whether it bears date of the 
15th, or of the 10th, because in either case it is payable immedi- 
ately on demand; in such a case it ought to be dated the 15th. If 
the check, drawn on June 15th, were dated June 20th, it 
would be a "post-dated" check, and would carry on the face 
of it a notice to the bank not to pay it until the 20th. The 
practice of post-dating a check is now and then very useful, 
when the person drawing the check is not sure about the value 
of that which he is to get in exchange for it. If he gives a 
post-dated check for something which he buys, and finds that 
the seller has cheated him by misrepresentations concerning 
the thing thus bought and sold, he can stop payment of the 
check at any time before the date it bears. The way to stop 
payment is to write a note to the bank, describing the check, 
and requesting that it be not paid. 

* * * A certain farmer had a bank deposit. An agent for the sale of 
agricultural machines called on him, and persuaded him to try a patent 
reaper, which could be delivered in ten days, and of which he showed 
him a drawing. By way of payment, the farmer gave his promissory note, 
payable to the agent, or his order, although he had not yet received the 
machine. When it came, it turned out to be worthless, and materially 
different from the drawing. As between him and the agent, the farmer 
could have defended on the note by showing that the agent had cheated 
him. Unfortunately, the agent had transferred the note to some one else, 
in the regular course of business, so the farmer had to pay the money to 
the holder, thereby sustaining a considerable loss. If he had given his 
check, payable to the agent only, and dated it a fortnight ahead, he would 
have secured himself. In that case, whether the reaper did not arrive at 
all, or whether, when it came, it turned out to be different from the descrip- 
tion and the warranty, he could lawfully have recalled the check. 



BANK CHECKS. 93 

The person who takes a check ought to present it for pay- 
ment as soon as possible, for his own security. In dealing 
with merchants and banks of good commercial standing, there 
may not be much danger in delay; but there is always a possi- 
bility that the drawer of the check will draw other checks 
which will exhaust his deposit, or that the bank itself may be- 
come insolvent. The check, being payable at the date it 
bears, is intended to be promptly presented, and not to lie 
in the holder's pocket-book or safe, like a coin or a ten dollar 
bill. 

If a bank refuses to pay because the account is already ex- 
hausted or overdrazvti, the holder can, of course, demand pay- 
ment from the maker, whose duty it was to provide and keep 
funds for its discharge in the hands of the bank; but it maybe 
much more difficult for the holder, who neglected to present 
the check promptly, to collect from the maker, then it would 
have been for him to have gone to the bank and got his money 
at first. 

Besides this, as we have said, the bank may become insolv- 
ent. In view of this event, it is particularly important to 
notice what is meant by prompt presentment. If the holder 
presents the check on the day on which he gets it, or during 
banking hours on the next working day, he will be considered 
as doing so in reasonable time. He has a whole day at his 
disposal, and something more. If he gets the check early in 
the forenoon, he has nearly the whole of two days. If the 
bank on which the check is drawn is at a distance, he has the 
remainder of a day, and the next working day until the mail 
closes, in which to send it away for collection ; and the per- 
son or bank to whom it is thus sent has the remainder of the 



94 BANK CHECKS. 

day on which he receives it, and the whole of the next working 
day, on which to present it. If demand is made within a 
reasonable time, according to the rule now laid down, and 
payment is refused because of the failure of the bank, the 
holder can require the drawer of the check to pay it. If 
demand is not made within a reasonable time, and the bank 
fails before the check is presented (the drawer having had 
funds there with which to pay it), the holder must bear the 
loss, because it resulted from his own negligence. 

To put the matter in another shape : the drawer of a check 
undertakes that he has funds in the bank which are to be ap- 
plied to its payment, and that the bank will remain solvent 
during a reasonable period, within which the check is to be 
presented. He does not undertake, so far as that check is 
concerned, that the bank will continue solvent indefinitely, 
though he does undertake that he will not impair the value 
of the check by withdrawing his deposit. 

We have seen that a check bears some resemblance to a bill 
of exchange. When a bill of exchange is payable on demand, 
it is usually not accepted when presented to the drawee, but 
simply paid. The act of payment in that case includes the 
notion of acceptance. Acceptance is a promise to pay; and if 
the drawee actually does pay, no express promise on his part is 
necessary. And so it is with a check, which, being payable on 
demand, is usually not accepted. A practice has grown up with- 
in the last twenty years, however, by which banks really do accept 
checks drawn on them. This is the practice of certifying checks; 
and the manner of doing this is for the bank cashier to write the 
word goes/across the face of the check, and add his name. The 



BANK CHECKS. 95 

transaction is as much as to say: "This bank has money, on ac- 
count of the drawer of the present check, sufficient to pay it ; 
and the bank will take care of the necessary amount, and will 
appropriate it to that particular purpose." In fact, the bank, 
having money in hand belonging to the maker, immediately 
debits his account for the amount named in the check, assumes 
the payment of the latter at any time it may be presented, and 
thus virtually transforms the check into a bank note. 

There is a difference between the accepting of a bill, and 
the certifying of a check. In the former case, the drawer is 
liable, upon failure of the acceptor to redeem his promise. In 
the latter case, the liability of the drawer is wholly gone. 
This is thoroughly reasonable; because, where the document 
was a check, the payee could have had his money if he wanted 
it, but preferred to take, instead of it, the promise of the bank. 

The act of certification being one of serious responsibility, 
it is not every officer of a bank who is empowered to perform 
it, but only the cashier or the teller. In America, the princi- 
pal officer of the bank is usually called the cashier. He has 
the general superintendence of its business, and the charge of 
all its funds. The whole financial operations of the bank are 
conducted through him. It is his duty to see that debts due 
to it are collected, to lend or borrow on its account, and to 
acceptor refuse such deposits as may be offered. Large banks 
have assistant cashiers, who act under instructions from the 
principal one. The teller is a subordinate officer who receives 
and pays out money. These duties, however, are generally 
separated in banks doing a large business, there being one or 
more tellers for receiving, and one or more for paying. In 



96 BANK CHECKS. 

England, the chief executive officer of a bank is called the 
manager. Some American banks follow this custom. 

There is one important limitation of the power of certify- 
ing. No bank officer is permitted to certify a check drawn 
by himself; and the act of a cashier or a teller, in attempting 
to do this, would not bind the bank. In other words, a 
check drawn by the cashier, and certified by him, would be 
no better than an ordinary uncertified check, and would not 
be equivalent to a bank note. It would be dangerous to adopt 
a different rule. 

The bank is bound to know the signatures of its customers, 
and usually keeps a book in which they write their names for 
the purpose of comparison. Consequently, where a check is 
altogether a forgery, or where the signature to it is forged, the 
bank, if it fails to discover that circumstance, and pays the 
amount on presentment, cannot usually charge the party whose 
name has been forged with the amount so paid. It is gener- 
ally held that the bank, under such circumstances, cannot re- 
cover the money from the party to whom it has been paid. 
Hence, much care is required from the paying teller, lest he 
cause the bank great loss by paying forged checks. If the 
fault, or fraud, or negligence of the holder, or of the apparent 
drawer of the check, were an element which contributed to the 
misfortune, then the rule is different, as indeed it ought to be. 

While the bank is thus bound to know the signature of each 
of its depositors, the fact that the body of the check is in a 
different hand is not enough to put the teller on his guard, 
because business men frequently instruct their clerks to fill out 
checks for them to sign. Persons occasionally sign checks 



BANK CHECKS. 97 

without filling in any amount, leaving others to fill in the 
amount as occasion may require. This is a very unbusiness- 
like practice, and any one who adopts it runs a continual risk 
of loss. If the signature is genuine, and the body of the check 
displays no irregularity, the bank cannot be blamed for mak- 
ing payment ; and where a check has been "raised" by the 
skillful filling up of blank spaces, and the signature is genuine, 
the loss will properly fall on the drawer, because it originated 
in his negligence. A striking example, illustrating these 
points, occurred some years ago in England. A gentleman, 
who had a bank deposit, was obliged to go away from home. 
He left with his wife several checks signed in blank, telling 
her that she could fill them with such amounts as she might 
from time to time need. She soon had occasion to fill one in 
for "fifty-two pounds and two shillings. " Not being accustom- 
ed to deal with commercial paper, she wrote the amount, 
"fifty- two pounds and two shillings" with a small 'f, leav- 
ing a considerable space before it. She also left room for 
another figure before the 52. She then handed the check to 
her husband's clerk, asking him to get the money. He wrote 
"Three hundred and" before "fifty-two" where it was ex- 
pressed in words in the body of the check, and inserted a 3 
before the 5 2 written in figures. The bank paid him three hun- 
dred and fifty-two pounds and two shillings, out of which the 
clerk kept three hundred pounds (or about $1458) and shortly- 
disappeared. Upon his returning home, the depositor objected 
to be charged with the full amount, and went to law about the 
matter ; but the court decided that he was in the wrong, because 
he and his wife together had put the opportunity of dishonesty 
so completely in another person's power. He ought not to 



98 BANK CHECKS. 

have signed the checks in blank, when he might have adopted 
some other means of keeping his wife in funds. Or, if he was 
determined to do so careless a thing, he should at least have 
told his wife how to fill up the amounts. This incident car- 
ries with it a highly useful lesson. 

Checks are usually given by a debtor to a creditor in dis- 
charge of a debt. The giving of a check is not of itself pay- 
ment, even though the drawer has funds in the bank ; because 
(as we have seen) he is bound not only to have funds there, 
but also to guarantee the soundness of the bank during that 
reasonable period within which the payee ought to present the 
check. The giving of the check, and the receiving of it, make 
a conditional payment. That is to say, the debt is discharged 
if the check is duly paid ; or if, after the proper time for pre- 
sentment, and before presentment takes place, the bank 
should fail. 

A check is never a " legal tender." This means that the 
person to whom a check is offered in discharge of a debt is 
not bound in law to take it. He can require payment of the 
amount due him in cash ; but, as creditors are usually glad to 
be paid at all events, they do not frequently object to receiv- 
ing checks, and the check system is a great accommodation to 
the public. The term "legal tender" comprises gold and sil- 
ver coin of the United States, and Treasury notes, but not 
national bank notes (secured though they are by a deposit at 
Washington), nor any of those kinds of negotiable paper with 
which we have dealt. 

Although a check is not a "legal tender," the person taking 
it in conditional payment of a debt runs very little risk ; be- 



BANK CHECKS. 99 

cause, even if payment is refused upon prompt presentment., 
he is no worse off than he was at first. When a check is offer- 
ed in payment of a bill of exchange or a promissory note, 
some caution is desirable. Upon the discharge of a bill or a 
note, it is customary for the holder to give it up to the person 
making payment ; and it is plain that the holder runs some 
risk in surrendering his bill or note in exchange for a docu- 
ment which may possibly turn out worthless. Much depends 
on the parties with whom one is dealing. If the maker of the 
note, or the acceptor of the bill, is not a person of recognized 
credit and stability, the safe plan, though it may involve the 
giving of offense, is for the holder not to part with the note 
or bill until he is paid in cash ; and, where one person acts as 
the agent of another for the purpose of collecting the amount 
due on a note or a bill, he cannot, with entire safety to him- 
self, take a check in exchange for it. If he does so, he should 
use special diligence in speedily turning the check into cash. 



CHAPTER XI. 



CONCERNING THE COLLECTION OF DEBTS. 



All questions which have to do with the collection of debts 
are of great practical importance. Under this topic, we class 
Limitations, Attachment, Liens and Exemptions. Inasmuch 
as these subjects are everywhere regulated by statutes, they 
cannot in this work be pursued into their details. The reader 
must obtain special instruction or information concerning the 
law of the State in which he lives or does bu&iness. 

Debts are either secured or unsecured. A debt is said to 
be secured, when the creditor takes a mortgage, or pledge, or 
guaranty, or some other security for its payment. Otherwise, 
it is said to be unsecured. Where some friend of the debtor 
guarantees the payment of the debt, which is as much as to say 
that if the debtor does not pay it, then he himself will do so, 
this promise must be in writing ; and it ought usually be made 
when the credit is given, or when the creditor is about to sue 
the debtor, and the promise holds him back. The person 
making such a promise is called the guarantor. 

A debt may be perfectly valid and binding at first, and yet 
it will not always remain so. If the creditor fails to take legal 
proceedings for a certain time, the debt will be "outlawed" 
by what are called Statutes of Limitations. When it is once 
thus outlawed, the debtor is allowed to plead that the debt 



COLLECTION OF DEBTS. 101 

was not created within the last six years, or whatever the per- 
iod may be ; and that is a good defense. No amount of mere 
dunning will help the creditor to keep the obligation alive. 
He must do more than simply request payment. He must 
institute an action at law to recover the debt. It does not 
follow that he need prosecute the action without further delay; 
but he must commence legal proceedings within the statutory 
period. It may be dishonest on the debtor's part to take ad- 
vantage of the creditor's long indulgence ; but the law dis- 
courages stale claims for several good reasons. The period of 
limitation as to actions on ordinary contracts is generally five 
or six years ; but, in some States, it has been cut down to three 
years, or even two. On writings under seal, such as bonds, 
the period is usually ten years, at least. 

When the statutory period has gone by, the creditor is not 
prevented from bringing his action ; but the debtor, if he 
chooses, can plead the statute, and defeat the claim. There 
are. however, some circumstances which help the creditor. If 
the debtor has made a payment on account, or has paid inter- 
est on the debt, or has promised to pay it, though it was out- 
lawed, the period will begin again from the date of the pay- 
ment or promise, just as a clock which is wound up begins to 
run afresh. Where a promise is relied on, it is desirable, and 
in many of our States necessary, that it should be in writing ; 
and it is a good point on the side of the creditor to obtain a 
part payment, however small, as well as a new promise to pay 
the whole debt, if he can. 

The subject of attachments is complicated by much variation 
in local laws. An attachment is a proceeding by which a de- 
fendant's goods are taken in charge by a sheriff or other legal 



102 COLLECTION OF DEBTS. 

officer, to secure the plaintiff or creditor in case he establishes 
his claim. The person applying for an attachment always has 
to give a bond for the indemnifying of the defendant, in case 
the claim turns out unsound ; because, if that be so, he has 
put him to unnecessary annoyance, embarrassment and loss. 
An attachment usually issues when the debtor or defendant 
lives out of the State, but has goods in it ; or when he has 
absconded, or is about to abscond, or is concealing his prop- 
erty and evading his creditors. In some States, a creditor 
whose debt is unsecured is allowed to apply for an attachment 
when he brings his action ; but this is not the case generally. 
The ordinary rule is that the creditor of a debtor who is not 
acting fraudulently must bring his action, and get judgment, 
and have an execution issued upon that judgment; and then 
the execution, it unsatisfied by payment, is followed by a sale 
of the debtor's goods. Where there are several creditors, 
there is usually a race between them fir the priority, either in 
issuing the attachment, or in procuring the judgment and 
issuing the execution, as the case may be. The execution is 
the act of the law in taking property and selling it to satisfy 
the judgment, unless payment is otherwise made. The officer 
conducting the execution is the sheriff, deputy sheriff, or 
constable. The execution proceeds in the first place against 
the personal property of the debtor, and then against his real 
estate, if he has any. By real estate, we mean land and houses, 
as a general thing ; and by personal property, everything else 
that a man owns. 

The law T , however, does not permit a creditor to strip his 
debtor of all he possesses. Every State in the Union has its 
statute regulating exemptions. By an exemption is meant a 



COLLECTION OF DEBTS. 103 

provision of the law, in virtue of which certain things are not 
to be taken on execution, and are therefore said to be exempt. 
There are few topics as to which the local statutes vary more 
than they do as to this. Let us take two extreme examples : 
in Maryland, wearing apparel, books, tools and other property 
are exempt, to the value of $100; in Texas, the debtor may 
claim 200 acres of country homestead, or $5000 worth of city 
homestead, and a miscellaneous assortment of personal prop- 
erty, including household furniture, tools, books, pictures, 
and about fifty animals of specified kinds. From this it 
would appear that Maryland is a good State for creditors, and 
Texas an agreeable home for debtors. In some States, a 
debtor is allowed to waive his exemption, when the debt is 
created ; in others, he is not allowed to do so. By waiving 
an exemption, is meant that he binds himself not to take ad- 
vantage of it; that he will not hinder any levy and execution 
on the goods, although they are specified in the exemption 
law. In those States where this waiver is permitted, promis- 
sory notes are frequently made out on printed forms, which 
contain a clause expressly waiving the benefit of any exemp- 
tion. That condition of things is perhaps the best where the 
rule is neither very harsh nor very lax ; where a creditor is not 
allowed to reduce his debtor to absolute pauperism, and where 
a debtor is not allowed to retain an unreasonably large amount 
of property, and laugh at his creditor. The exemption laws 
generally relate to contract debts only, and not to claims aris- 
ing from wrong-doing, apart from breach of contract. 

It does not follow, because a debtor is at present worth very 
little, that one's claim against him should not be prosecuted. 
There are, of ' course, many cases which are not worth " pow- 



104 COLLECTION OF DEBTS. 

der and shot;" but it does not cost much to reduce a valid 
claim to the shape of a judgment at law, especially when no 
defense can be made to it. The creditor who has thus re- 
duced his claim to a judgment, and is called a judgment- 
creditor, can hold it over his debtor, and enforce it by execu- 
tion, if the debtor afterwards comes into the possession of 
property, subject, however, to any exemption which the 
debtor may have a right to claim. Even if the debtor moves 
into another State, the judgment may be useful; because, if he 
acquires sufficient property in his new home, a transcript of 
the judgment can be sent after him, and proceedings taken to 
enforce payment. The Constitution of the United States 
provides that " Full faith and credit shall be given in each 
State to the public acts, records, and judicial proceedings of 
every other State;" and Congress has provided means for 
carrying this provision into effect. A judgment at law, of 
course, comes within the phrase, "judicial proceedings." 

Besides this, a judgment constitutes a lien on the debtor's 
real estate, if he has any, subject, however, to homestead ex- 
emptions, if such there be. This needs to be explained. 
The judgment attaches itself to the land in such a way that 
the land itself is responsible for it; and whether the debtor 
continues to hold it after the judgment, or deeds it to some one 
else, makes no difference. In some States, the judgment con- 
stitutes a lien on land subsequently acquired by the debtor ; 
in others, on that only which he holds at the date of the 
judgment. The lien usually remains good for a fixed period 
of years, and can be prolonged by a revival of the judgment 
before the end of that period ; but there is so much diversity 
in the State laws with reference to judgments and judgment- 



COLLECTION OF DEBTS. 105 

liens, that general rules can with difficulty be laid down. Be- 
sides this, the necessary procedure can be managed correctly 
by no one without legal knowledge and experience. All, 
therefore, that a creditor need do is to remember that a judg- 
ment can be made to follow the debtor, and may attach itself 
to his land; and to take good legal advice when the necessity 
for it arises. 

The ordinary or "common law" lien is much simpler than 
the lien of a judgment. Generally speaking, it is the right 
which a workman has, when he does work upon some article 
placed in his charge for that purpose, to hold it until he is 
paid. If you take your coat to a tailor to have a new lining 
put in, the tailor, having completed his job, is not legally 
obliged to hand over the coat, unless you pay him. If he 
does let you have the coat, although you have not paid him, 
the debt remains, but the lien is gone. Such a lien as this, 
supported by possession of something of value, may be an 
efficient means of enforcing payment. We have already seen 
that the unpaid seller or vendor of merchandise, when he sold 
for cash, could retain possession of the goods disposed of un- 
til the cash was actually paid to him. This right on his part 
is called the vendor's lien. A common carrier has a lien on 
what he carries, for the amount of the freight. An inn- 
keeper has a lien_on his guest's baggage, for the price of his 
entertainment. An agent or commission merchant, who 
handles produce for farmers or planters, and sometimes makes 
advances to them, or incurs expenses on their account in 
other ways, has a lien on the wool, or cotton, or fruit, or what- 
ever they consign to him, and on the money for which he sells 
the produce, for the amount of his just claim. 



106 COLLECTION OF DEBTS. 

These are the principal kinds of common law liens. In 
each case, continued possession is necessary, as in the example 
of the tailor and the coat, except that, inasmuch as the com- 
mission merchant is employed to sell produce, he can pay 
himself out of the sales which he makes. The continued pos- 
session of a debtor's goods by his creditor, however incon- 
venient it may be to the former, does not of itself enable the 
latter to get his money ;■ and statutes generally provide for 
advertisement and sale after a given time. 

Persons who supply material or work for the building or re- 
pair of houses have not the possession ol the thing which 
they improve, and therefore have not any ordinary lien. 
Their position has been greatly helped by the passage of what 
are called Mechanic's Lien Statutes. It is not sufficient for 
such persons merely to be able to show that they have done 
work, or supplied materials. They must take such proceed- 
ings as the local statute requires, usually by filing a statement 
of the claim, within a certain period, in the office of the 
county clerk or recorder of the county in which the land lies, 
whereon trie improvement was made. The statutes concern- 
ing this topic vary considerably in different States, and must 
be closely examined and followed. 

It occasionally happens that a creditor knows of persons 
who owe money to his debtor, or hold property of his in their 
possession. It has long been the practice, when the creditor 
institutes legal proceedings for the recovery of the debt, lor 
him to "attach" this money or property, and to give notice 
to the persons who are under obligation to his debtor in re- 
spect of it. This notice or warning is called "garnishment;" 



COLLECTION OF DEBTS. 107 

and the person who receives it is called a "garnishee." Upon 
being thus notified, he is bound to keep the property in his 
hands, or to refrain from making payment of the money he 
owes, and to hold this property or money for the satisfaction 
of his creditor's creditor, who issued the attachment. If the 
claim under which the attachment was issued should prove 
bad, the attachment will he "dissolved," and things will then 
be as they were at first. 




CHAPTER XII 
CONCERNING PARTNERSHIP. 



Partnership is an association of individual persons, for the 
purpose of common gain. Each of these individual persons 
contributes something to the common stock, in order to se- 
cure this object. Gain may arise from manual or mental 
labor, or it may arise from the use of money in buying 
and selling, lending and borrowing. It usually arises from a 
combination of several of these things. The profit made in a 
store arises partly from the possession of capital to buy goods 
with, partly from experience and judgment in buying, and 
partly from work in handling and selling the goods. 

Partners usually contribute separate shares of capital to the 
common stock, and also agree to work together; but this is 
not always the case. Sometimes, one will invest capital with- 
out undertaking any regular personal service, while others 
contribute money and work, or, it may be, work only. It is 
necessary that each partner should contribute something 
towards the success of the enterprise; but the contribution of 
one need not be the same as that of another, either in kind 
or amount. The division of profits ought to bear a propor- 
tion to the value of that which each partner puts in. This 
question, however, is settled in most cases by mutual agree- 
ment. If there be no special understanding about it, the law 
will usually presume that the partners intended to divide the 
profits equally. 



PARTNERSHIP. 109 

There is no provision of law which positively requires that 
an agreement for a partnership should be in writing; but this 
kind of agreement frequently involves so much opportunity 
for differences of opinion in matters of detail, and the conse- 
quences flowing from the relationship thus created are fre- 
quently so serious, that articles of agreement ought to be drawn 
up, as a matter of mere prudence. 

These articles ought to specify the names of the parties, the 
period during which the partnership is to last, and the kind of 
business in which it is to engage. The period ought to be 
specified ; because, if that is left open, any partner can with- 
draw when he chooses, though he cannot, by withdrawing, rid 
himself of responsibility for liabilities already incurred. The 
kind of business ought to be stated as precisely as possible ; 
otherwise, a partner may be led into risks which he never 
intended to assume. If the profits are not to be divided equally 
among the partners, the manner of their division ought to be 
stated accurately ; and the amount and kind of each partner's 
contribution should be stated, together with the nature of the 
duties which any of them undertake to perform. It is occa- 
sionally provided that one partner only shall sign the name of 
the firm to commercial paper. Such a provision may be very 
useful, especially in preserving the interest of those who supply 
most of the capital. But the formation of the partnership 
involves the notion of mutual agency. In other words, each 
partner, because he is a partner, has the power of acting, in 
ordinary business transactions, so as to bind the whole firm. 
If the firm is engaged in commerce, this power includes an 
apparent authority to execute and endorse commercial paper. 
The consequence is this : if the articles of agreement, into 



110 PARTNERSHIP. 

which the members of the firm of Brownlow, Canfield & - 
Dixon have entered, provide that no one except Mr. Brown- 
low shall make notes, draw or accept bills of exchange, or 
endorse any negotiable paper in the name of the firm, and if, 
notwithstanding this, Mr. Canfield signs the firm name to a 
promissory note, and the holder of the note knows nothing 
about the private agreement which has been made, and has 
taken the paper regularly, the firm will be obliged to pay. 
Any unpleasantness that may arise from Mr. Canfield 's breach 
of the articles of agreement must be adjusted among the part- 
ners themselves. Were the rule otherwise, the transfer of 
commercial paper, which it is desirable to encourage, would 
be embarrassed. Any one, to whom paper bearing a firm name 
might be presented, would have to inquire whether the part- 
ners had made any special agreement as to the point in ques- 
tion ; and, if they had, whether the signature was made by the 
partner privately authorized to sign. A somewhat ordinary 
case arises in the following manner : a partner gives a note in 
the name of the firm, for his own personal indebtedness. He 
ought not to do this, as a matter of course. If he gives a note 
at all, it should be his own note. The person who takes the 
note, signed by him in the name of the firm, ought to know 
that such a proceeding is irregular ; and if he goes on holding 
it until it falls due, and then demands payment from the firm, 
the firm may very properly say that the indebtedness is that of 
the partner who signed it, and that he must pay it out of his 
own pocket ; but, if the note had come regularly into the 
hands of some person who did not know how it originated, 
then the firm would have to pay it, and its only remedy would 
be to charge the transgressing partner with the amount. 



PARTNERSHIP. Ill 

A partner who takes no active part in the management of 
the business is called a silent or dormant partner. Such a per- 
son usually has an interest in the concern in virtue of capital 
put in by him, and is as fully responsible for the debts of the 
firm, and as fully entitled to a share in its profits, as if he con- 
tributed both money and work. 

It occasionally happens, though not often, that a person will 
lend his name to a mercantile concern to gain credit for it, 
though he has no real interest in the business. Under such 
circumstances, he is said to be a nominal partner. His posi- 
tion with reference to the firm is very much like that of an 
accommodation endorser of a note or bill. He gets no bene- 
fit out of the transaction, but he cannot escape liability on that 
account, since those who dealt with the firm did so, in part at 
least, on the faith of his being a member of it. 

It would be contrary to good sense and justice to compel 
any one to associate in business with some one else with whom 
he has no wish to associate. Several important consequences 
flow from this principle. Three partners out of four cannot 
introduce a fifth partner into the firm, without the consent of 
the fourth. If one partner sells out his interest and retires, 
neither of the others can be obliged to remain together ; and 
the case is the same when one of them dies. Changes of this 
kind are said to cause a dissolution of partnership. In very 
many cases, the remaining partners agree to go on, so that 
the dissolution is only momentary, like the dividing of a stream 
of water, which at once closes up again. If one partner dies, 
his interest passes on to those who represent him, and they are 
entitled to call for an account, and to claim his share of the prof- 
its down to his death. It is not unusual for a partner to make 



112 PARTNERSHIP. 

his will, leaving so many thousand dollars in the firm for the 
benefit of his family. If thh arrangement is consented to, the 
persons thus benefited become dormant partners. 

It sometimes happens that a difference of opinion occurs 
between the members of a partnership, concerning the pru- 
dence of engaging in some particular transaction. In that 
case, as a general rule, the vote of the majority will determine 
the matter. This vote must be taken after a fair consultation, 
in which the minority have had an opportunity of speaking. 
As Lord Eldon once said, there must be a voice called for 
from the minority, and submitted to, and fairly over-ruled by, 
the majority. This rule, of course, does not apply to the 
details of every-day business, but to special and important 
bargains, such as naturally require deliberation. Inasmuch as 
the law presumes an equality of interest and of power among 
partners, when nothing appears to the contrary, it is occasion- 
ally desirable to provide, in the articles of agreement, for such 
difference in the voting power as will make the authority of 
each individual more nearly correspond to his contribution. 

Further, in order to give effect to a vote of the majority, 
the transaction in question must be within the scope of the 
objects originally contemplated in the partnership. If it lie 
outside of these objects, any partner, however small his inter- 
est, may refuse to yield. A firm whose business is with hard- 
ware does not usually buy and sell rice. If an opportunity 
presents itself to such a firm to purchase an invoice of rice at 
a low figure, this may be done by common consent; but, if 
one partner should object, he cannot be forced into such an 
adventure. 



PARTNERSHIP. 113 

Where money is borrowed by a partnership for partnership 
use, or by any partner for his own use, the transaction needs 
no explanation. But money is sometimes borrowed by a part- 
ner for the use of the firm, or, less frequently, by the firm for 
the use of a single partner. In such cases as these, the lender 
of the money must look for repayment to the person or per- 
sons to whom he gave credit when the loan was made, and 
cannot go beyond that transaction, so as to charge the ulti- 
mate user or users of the money. A close examination of the 
circumstances may be necessary, to determine the point upon 
which the question turns. 

Any one partner, in a commercial partnership, as we have 
seen, has authority to act for the firm, and to bind it, in matters 
of ordinary business ; but this authority does not extend to 
acts of an unusual kind. One partner may buy such goods as 
the firm handles, sell them, give the purchaser a warranty of 
quality, receive payments, give receipts in the name of the 
firm ; and (in the absence of special agreement and notice to 
the contrary) he may sign the firm name to commercial paper. 
He cannot, however, without the concurrence of his associates, 
confess judgment in the name of the firm, or submit a contro- 
versy to arbitration, or execute a bond whereby the firm 
becomes a surety, or make a deed of real estate belonging to it. 
The line between ordinary and extraordinary acts, with refer- 
ence to this limitation of a partner's power, is tolerably well 
defined; though, on some points, the courts are not unani- 
mous. The four things last stated, which one partner cannot 
do by himself, are all of so great importance, and of such in- 
frequent occurrence, that the law and common sense point to 
the same conclusion. The act of confessing judgment, for 



114 PARTNERSHIP. 

example, means that the party acknowledges the debt or default 
with which he is charged, and will not put the claimant or 
plaintiff to the trouble of proving it. This is plainly a thing 
which ought not to be done in the name of a partnership, un- 
less all the partners consent to it. 

Debts which are owing from the firm ought, of course, to be 
paid by the firm, while each partner is responsible for his own 
private debts. If one partner becomes insolvent, or if the 
firm cannot pay off its whole indebtedness, or if both of these 
misfortunes happen at once, it becomes necessary to examine 
the method of adjusting the claims of creditors. 

Each partner, besides such private property as he may own, 
has an interest in the firm ; and every partner in an ordinary 
firm is liable, together with the others, for the whole indebted- 
ness of the concern. If one partner becomes privately in- 
debted, so that he cannot pay all his creditors in full, they can 
get judgment against him, and take, in the first place, his pri- 
vate property ; and, in the second place, his interest in the 
firm : that is to say, after exhausting so much of his private 
property as is not exempt from execution, they can take pro- 
ceedings by which an account will be obtained from the firm, 
and his share will be ascertained, and the value of it applied 
to the payment of his debts. If the firm itself becomes embar- 
rassed, so that it cannot pay all its creditors in full, these 
claimants can get judgment against it, and take, in the first 
place, the stock in trade, and such other personal property of 
the concern as can be found ; and then its real estate, if any. 
They can also "garnish" such debts as are due to it ; and, if 
all this is insufficient, they can have execution issued against 
the private property of any or all of the partners. Should one 



PARTNERSHIP. 115 

partner be thus obliged to pay more than his proper share of 
the joint indebtedness, he can call on the others to repay him 
to the extent of this inequality. This claim on his part is 
called his right of contribution : that is, his right to compel 
his fellow-partners to contribute. The contribution thus 
coming from the other partners should be in proportion to 
the interest which each has in the concern. 

The creditor of an individual partner, who fails to obtain 
payment from him, has no right to take in execution any spe- 
cific piece of property that belongs to the firm. He can only 
make his debtor's interest in the firm answerable for the debt; 
and that interest is ascertained by means of an account. For 
example, where a drugstore is carried on by three partners, 
the cases, counters, and stock in trade do not belong to any 
one of them separately, but to all of them jointly. This, at 
least, is generally the case. If a partner who has run into 
debt has a valuable piano in his house, that piano may be 
seized and sold on execution, unless rendered exempt by stat- 
ute ■ and, if other persons owe him money, and the creditor 
knows it, he can "garnish" them ; but he cannot take in exe- 
cution a costly show-case which is in the store, and which his 
debtor may have put into the partnership as a part of his invest- 
ment. Under such circumstances, he must instruct his lawyer 
to call for a statement of the affairs of the drugstore, and find 
out what is owing from it to the debtor, in the manner pre- 
scribed by law. 



CHAPTER XIII. 



PARTNERSHIP, ETC., CONTINUED: TRADE 
MARKS. 



A partner who retires from the firm cannot, of course, by 
the act of retiring, rid himself of responsibility for such debts 
as the firm may happen to owe. If he could, no one would be 
safe in dealing with a partnership and giving it credit. If the 
retiring partner wants to relieve himself from liability for 
debts which may be incurred by the firm after he goes out of 
it, he must be careful to notify those persons who have done 
business with the firm that he is no longer connected with it. 
Unless they know that he has retired, they may go on giving 
it credit on the reasonable supposition that he is still a partner. 
Whatever private arrangements have been made, in this or any 
other matter, will not be allowed to affect strangers injuriously, 
however good they may be as between the partners themselves. 

A convenient way of discharging the liability of a retiring 
partner, if the creditors of the firm will consent to it, is this : 
the amount of indebtedness to each creditor being ascertained, 
the partners who remain in the firm make their note in favor 
of each creditor, or accept a bill drawn by him ; or, where the 
name of the firm is changed, one of the remaining partners 
makes the notes, or accepts the bills, in the new name of the 
firm. The creditors are at liberty, however, to refuse to dis- 
charge the outgoing partner in this or any other way, until 
their claims are fully paid. 



PARTNERSHIP, ETC., TRADEMARKS. 117 

We have seen that a partnership is dissolved when one of 
the partners dies. This may also be the case, under some 
circumstances, when he assigns his interest ; and the same 
result follows the bankruptcy of one partner, or his insanity. 
In most cases ot this description, the remaining partners 
immediately re-unite, and the dissolution is only momentary. 
There may at any time be an agreement to dissolve, which, 
however, will not make the slightest difference as regards 
existing obligations of the firm to third parties. A partner- 
ship will be dissolved by the expiration of the period for which 
it was created, if the parties do not continue it after that 
period. It happens, in rare instances, that the purpose of the 
partnership becomes impracticable, or that the mode of con- 
ducting the business is such as to threaten financial ruin, and 
yet one obstinate or fraudulent partner insists on going on with 
it. There is a remedy for such a difficulty : the partners who 
wish to have the concern wound up can apply to a court of 
equity, and obtain a decree of dissolution. In a case like this, 
legal advice is very necessary. 

What has now been said on this topic relates to ordinary 
commercial partnerships. In many States, there may be such 
a thing as a "limited" or "special" partnership. This is 
an arrangement by which a person can put so much money 
into a trading concern, and derive a corresponding profit 
from it, without being liable to lose a dollar more than he 
puts in. The advantage of such an arrangement is obvious; 
but, in order that it may not become a snare to persons who 
deal with the firm, it is generally provided by statute that the 
name of a special partner shall not appear in that of the firm. 
Partnerships of this peculiar kind can only be formed under 



118 PARTNERSHIP, ETC., TRADE MARKS. 

positive statutes ; and all the provisions of the statute under 
which a limited partnership is formed must be accurately ob- 
served. Here, also, legal advice is desirable. 

There is a certain thing connected with an established busi- 
ness, which is called "good-will." Although not perceptible 
to one's bodily senses, it has a commercial value. Lord Eldon 
once defined it as " the probability that the old customers will 
resort to the old place." This probability arises from their 
experience of fair treatment, and depends, in a considerable 
degree, on the maintenance of a fixed locality. It usually ac- 
companies a business, when the business is sold or transferred; 
and it is chiefly important as enhancing the price at which the 
sale or transfer is estimated. There have been cases in which 
some secret of trade was connected with the "good-will;" 
but such secrets, if new and useful, are generally secured to 
their inventors, in this country, by the issuing of a patent. 

The operations of commerce are now so enlarged, that 
" the old customers " constantly wish to get certain articles 
from the same manufacturers or dealers, though they do not 
of necessity go to " the old place " in the sense in which the 
phrase was used by Lord Eldon. They wish to procure goods 
of the same description and quality as those which they have 
previously had ; and they look for some indication which will 
show that what they are now buying is similar to what they 
have been accustomed to buy. This indication is afforded by 
the use of trade-names and trade-marks. 

Every one is at liberty to use his own name, and to print it, 
if he can, upon the goods which he produces, or to label 
them with it. A manufacturing firm can use its name in the 



PARTNERSHIP, ETC., TRADE MARKS. 119 

same manner. Hence, it naturally follows that if Mr. 
Meneely goes into the business of bell-founding, and makes 
good bells, so that people inquire for bells of his manufacture, 
another person of the same name is not thereby prevented 
from going into the same business, and calling the products of 
his industry " Meneely bells." If Messrs. Crosse and Black- 
well make remarkably good pickles, which arc much in de- 
mand as coming originally from their establishment, this will 
not hinder another Mr. Crosse and another Mr. Blackwell 
from going into- partnership in the same business, and labeling 
their bottles with their firm name. Caution is necessary just 
at this point : the second Mr. Meneely, and the second Messrs. 
Crosse and Blackwell, will not be permitted to add such other 
marks or words as tend to deceive the public; and, if they do 
so, a court of equity will check them. This was well ex- 
pressed by an eminent English judge: "When a person is 
selling his goods under his own name, and another not hav- 
ing that name is usirg it, it is clear that the latter person is 
using it in order to represent the goods sold by himself as 
those of another. But where two persons have the same 
name, it does not follow that, because the one sells goods 
under his own name, and it happens that the other has the 
same name, he is selling goods as the goods of the other." 

So then, every man has the right to use his own name in 
his own business, though he may by so doing interfere with or 
damage the business of another person bearing the same name; 
but he has no right to use any artifice, by which the impres- 
sion may be produced, that the establishments are identical. 
Many interesting cases have arisen under this head. A curi- 
ous one, involving nearly the same principle, was that of Mr. 



120 PARTNERSHIP, ETC., TRADE MARKS. 

Cave, heard in England in 1868. He was a tradesman who 
had acquired a good reputation in a certain business. Another 
tradesman, engaged in the same line of trade, rented a corner 
store on the same street with Mr. Cave, and set up the sign 
"Cavendish House." This would have been all right; but 
the ingenious man directed the sign-painter to arrange the 
letters in such a way around the corner of the house that peo- 
ple on the one side should see only the first four of them. 
His belief evidently was that careless passers-by would go into 
his store under the impression that it was Mr. Cave's. The 
court saw through this artifice, and made him alter the sign. 

So it is with the titles of newspapers and periodicals. The 
name of a new publication must not so closely resemble that 
of an old one, as to be likely to lead the public astray. 

It was long ago perceived that a manufacturer could draw 
special attention to his goods, otherwise than by merely plac- 
ing his name upon them ; as, for example, by marking them 
with the figure of a crown, or a hammer, so that buyers might 
ask for the " crown brand" of this, or the "hammer brand" 
of that. Such a mark is called a trade-mark. A trade-mark 
may consist of letters, or words, or figures, or pictures, or any 
combination of the same. It has been said that it ought to 
act as a finger-board, guiding the public to the right spot. 
The letter Q in the middle of a castle, though meaningless in 
itself, will do this, when once people know to what it relates; 
and so will the word "Salamander," used in connection with 
the name of the particular article. No word, or combination 
of words or figures, is a good trade-mark in law, if it describes 
the thing sold by reference to its kind or quality, or to the 
town or county in which it is made ; though, as to the latter 



PARTNERSHIP, ETC., TRADE MARKS. 121 

point, it may be safer to say that a manufacturer cannot ap- 
propriate the name of the place in which his factory is situated, 
so as to prevent other manufacturers, who also have factories 
in the same place, from using that name, even though they 
came to the place after he did. The principle of the matter 
is this : a manufacturer is at liberty to tell the public the 
truth concerning what he produces. Hence, if one man 
makes "indestructible linen picture books" for children, and 
advertises them as such, this will not prevent another man 
from using the same description for similar picture books pub- 
lished by him. There must be something arbitrary in the 
connection of the words with the thing. This is the case with 
" Lone Jack " cigarettes, and "Charter Oak" stoves, and 
" Plymouth Rock " baking powder. That is to say, taking 
the last instance, Plymouth Rock has properly nothing to do 
with baking powder ; but, if a manufacturer of such powder 
were to use that name for it, and it came to be known thereby, 
the name would be a good trade -mark in law. 

There are, however, a few words and symbols, arbitrary in 
themselves, which have come into frequent use, and cannot 
be privately appropriated. Such are the letters I X L, and 
the word "Excelsior," and those signs which are commonly 
employed as emblems of freemasonry. To be deprived of 
the exclusive use of any of these as a trade-mark is certainly 
no hardship. The man must indeed be devoid of all invent- 
ive faculty, who cannot devise some original combination. 
The more uncommon, picturesque and startling the combina- 
tion is, the more likely it is to attract attention, and to secure 
custom, if only the goods offered are worth buying. 



122 PARTNERSHIP, ETC., TRADE MARKS. 

The judges have frequently said that a trade-mark which 
expresses an untruth will not be protected. The mark is to 
lead the public, and it must not mislead them. A useful ex- 
ample of this occurred in the State of New York, some years 
ago. A druggist made and sold a cosmetic, which he called 
The Balm of a Thousand Flowers. It was not really made from 
flowers, but from oil, ashes and alcohol. Another man com- 
menced to manufacture a similar article, which he called The 
Balm of Ten Thousand Flowers. The former manufacturer 
sought to check this, on the ground that the name thus chosen 
was a close imitation of that already used by himself; but the 
court refused to protect him, because the name he used was 
the expression of a falsehood. 

A person who uses a trade -mark already appropriated by 
some one else, is said to infringe on that other person's right, 
and his act in so doing is called an infringement. There may 
be an infringement, without a full and literal copying of the 
original name or mark. The question frequently occurs : 
What degree of similarity will constitute an infringement ? 
The reply is, such a degree of similarity as tends to mislead 
an average purchaser. If an ordinary person, looking at the 
mark or name with ordinary attention, would probably be 
deceived, that is enough to induce a court of equity to grant 
relief, by restraining the further use of the mark or name. In 
the case of the cosmetic already mentioned, the similarity of 
name was doubtless sufficient to give the first druggist a good 
cause of complaint ; but his application was denied, as we have 
seen, for a special reason. "It is not necessary," said an 
eminent English judge, "to show that there has been the use 
of a mark in all respects corresponding with that which 



PARTNERSHIP, ETC., TRADE MARKS. 123 

another person has acquired an exclusive right to use, if the 
resemblance is such as not only to show an intention to 
deceive, but also such as to be likely to make unwary pur- 
chasers suppose that they are purchasing the article sold by 
the party to whom the right to use the trade-mark belongs." 

Where there has been an infringement, the party injured 
can sue for damages already suffered, and also have the con- 
tinuance of the injury prevented. In some States, there are 
laws concerning trade-marks, and in two or three States a pro- 
vision is made for registering them. Congress passed an act 
on this subject in 1870, but it has been decided to be uncon- 
stitutional and void. 

A remedy can be had for all fraudulent acts in connection 
with trade-marks and labels ; such as the removing of the lat- 
ter, and placing them on packages of inferior goods, or the 
wrongful printing and selling of labels. It is usually more 
difficult, in such cases, to prove the fact, than to gain the 
assistance of the court after the fact is proved. 



CHAPTER XIV. 



CONCERNING CORPORATIONS. 



Corporations play an exceedingly important part in the 
commerce of the world. Many enterprises, requiring immense 
capital, and reaching over a wide area, are altogether too ex- 
tensive to be carried on by ordinary partnerships \ and many 
other enterprises, which are within the range of an ordinary 
partnership, can be more conveniently carried on in a differ- 
ent way. A corporation is a body of individuals authorized 
by law to act as though they constituted one person. The 
great Chief Justice Marshall expressed this notion very clearly, 
in saying that the main object of an incorporation, that is, of 
the act by which persons become a corporation, is "to bestow 
the character and properties of individuality on a collective 
and changing body of men." A corporation is said to be 
"an artificial person." It can hold property, and buy, and 
sell, and enter into agreements, within the scope of the pur- 
poses for which it was created ; and it can go into court by 
means of its attorney, and bring an action, or defend when an 
action is brought against it, just as any natural person can do. 
It makes no difference, as to any of these points, whether the 
members of the corporation remain the same, or whether some 
go out and others come in from time to time. The corpora- 
tion continues, although the membership may change. 



CORPORATIONS. 125 

Some corporations are "public" or "municipal," and with 
them we are not now concerned. A public or municipal cor- 
poration is a part of the State itself, like a town or a county, 
which has been incorporated by the legislature, in order that 
it may the more conveniently manage its affairs, and carry on 
a subordinate local government. The rules which it enacts 
are commonly called municipal ordinances. 

Corporations formed for commercial purposes are called 
"private corporations aggregate." They are private, as not 
being public or municipal, and aggregate, as consisting of 
more than a single individual. To this class belong the great 
railroad companies, and canal companies, and insurance com- 
panies, and many companies which are organized for manu- 
facturing goods, and banking, and dealing in real estate. The 
objects of private corporations are very numerous. The first 
thing to be done by persons who wish to form a private cor- 
poration is to procure a charter. By a charter is meant a 
document, issuing from the government, which authorizes the 
corporation to spring into being, and defines its powers. It 
was at one time necessary for every corporation actually to 
possess a document of this kind, prepared with great form- 
ality, and sealed with the seal of the sovereign power. The 
preparation of a separate charter for each corporation was 
found to be troublesome and expensive ; and so, in many 
States of this Union, general laws have been passed, under 
which persons who wish to be incorporated prepare their own 
articles of incorporation, under specified rules, and file copies 
of them with certain public officials, and are thereupon recog- 
nized as a corporation. Great care must be taken, in all such 
cases, to observe and follow the provisions of the statute. 



126 CORPORATIONS. 

When the articles are duly filed, they answer all the purposes 
of a charter conferred in the older and more ceremonious 
manner. 

We have seen that, in case of a partnership, the partners 
may contribute in different ways. One, for instance, may 
supply the capital, while another agrees to do the work. All 
who enter into a business corporation must contribute money; 
and the way of it is this : a certain sum is fixed upon as the 
capital, and that sum is divided into a number of equal parts, 
which are called shares; and the corporator subscribe for as 
many shares of the capital stock as they choose. Usually, 
they do not at once pay up the full amount of their shares, but 
only a stated portion, undertaking to pay the remainder in the 
future, or when it may be needed. The paid-up capital, of 
course, is not allowed to lie idle, except as much as is needed 
for current expenses. It is turned into various shapes, accord- 
ing to the character of the business in which the corporation 
is engaged. So then, the "capital stock" of a corporation 
consists of the paid-up capital, or that into which it has been 
converted, and of the capital not yet paid up, but due from 
the subscribers. If the corporation makes good profits, it 
may and ought to accumulate a surplus fund also. 

Here are a few statements made by the. Supreme Court of 
the United States, with reference to capital stock. Although 
uttered by men of profound legal knowledge, they are adapted 
to the comprehension of all who read them carefully ; for it is 
not a mark of the highest wisdom to be unintelligible. The 
capital stock of an incorporated company is a fund set apart 
for the payment of its debts. It is a substitute for the per- 



CORPORATIONS. 127 

sonal liability which subsists in private copartnerships. When 
debts are incurred, a contract arises with the creditors, that it 
shall not be withdrawn, or applied otherwise than upon their 
demands, until such demands are satisfied. It is publicly 
pledged to those who deal with the corporation, for their 
security. Unpaid stock is as much a part of this pledge, and 
as much a part of the assets of the company, as the cash which 
has been paid in upon it. Creditors have the same right to 
look to it as to anything else, and the same right to insist upon 
its payment as upon the payment of any other debt due to the 
company. A resolution that no further call shall be made is 
void as to creditors. An agreement that a stockholder may 
pay in any other medium than money is also void as a fraud 
upon the other stockholders, and upon creditors as well. The 
capital stock is a trust fund, of which the directors are the 
trustees. It is a trust to be managed for the benefit of the 
stockholders during the life of the corporation, and for the 
benefit of its creditors in the event of its dissolution. This 
duty is a sacred one, and cannot be disregarded. Its violation 
will not be undertaken by any just minded man, and will not 
be permitted by the courts. The idea that the capital of a 
corporation is a football to be thrown into the market for the 
purposes of speculation, that its value may be elevated or 
depressed to advance the interests of its managers, is a modern 
and wicked invention. 

Sentences like these, animated with the spirit ot essential 
honesty and justice, may w T ell be disentombed from volumes 
of reports, and commended to commercial men throughout 
the country. 

The directors of a corporation are the persons chosen to 



1 28 CORPORATIONS. 

manage its affairs, and to superintend its ordinary business. 
They are usually elected from time to time by the stockholders 
from among their own number. Their duty is to carry on 
the business of the corporation in furtherance of those pur- 
poses for which it was created, and not to divert its operations 
into some other channel. It is generally necessary for them 
to employ clerks and other subordinate officers, to attend to 
matters of detail. But this circumstance does not discharge 
them from the responsibility of faithful oversight ; on the con- 
trary, it emphasizes that responsibility. They are not,' how- 
ever, personally liable to the stockholders for losses arising 
from mere errors of judgment, but only for losses caused by 
their fraud or gross negligence. If they are honest and dili- 
gent, but incompetent, the remedy lies with the stockholders, 
who can remove them, in such manner as may be provided 
in their constitution or by-laws, and appoint competent men 
in their places. 

A corporation usually has a president, a treasurer, and a sec- 
retary. The president or manager is the chief executive 
officer, and has power to conduct the business, and to bind 
the corporation in ordinary matters of contract. The treas- 
urer is the custodian of the funds, and is responsible for the 
safe-keeping of them. The secretary has charge of the books, 
and is said to be the servant of the directors. These duties, 
assigned to several persons in large companies, may be com- 
bined in one person, if this be more convenient. The presi- 
dent and the treasurer and the secretary are responsible to the 
stockholders for the faithful peiformance of their respective 
duties, and are subject to the periodical supervision of the 
board of directors. 



CORPORATIONS. 1 29 

The rules adopted by a corporation for the management of 
its affairs are called by-laws ; and the power to make suitable 
by-laws rests primarily in the stockholders. It is frequently 
convenient, however, that this power should be exercised by 
the directors, or by some other select body of officers ap- 
pointed thereto in the articles of incorporation. By-laws must 
be reasonable in themselves, and consistent with the general 
laws of the country, and the particular purposes and powers of 
the corporation. Many interesting questions have arisen as 
to the validity of by-laws. A single instance must suffice here: 
a number of merchants formed a corporation which was called 
a "Merchant's Exchange;" and a by-law was made, requiring 
all members to submit such controversies as might arise be- 
tween them to arbitration. This occurred in the State of 
Missouri. Now, a provision of that kind tends to abridge the 
right which a citizen has to claim the protection of the courts 
of justice, in all matters affecting his legal rights. Persons 
may very properly agree to submit existing disputes to arbi- 
tration ; but an agreement between Atkins and Dawkins, to 
submit all their futu re disputes to the decision of Wilkins, will 
not be sustained, This by-law closely resembled such an 
agreement, and the court pronounced it unreasonable and void. 

A corporation may not go beyond the limits of its powers: it 
may not engage in transactions which fall outside the scope 
of those purposes for which it was created. This principle is 
well illustrated in the case of a religious society which had 
become incorporated, and which bargained with the owner of 
a steamboat to charter it for an excursion. The society was 
organized and incorporated for religious purposes ; and a 
social picnic, however pleasant and profitable, could scarcely 



130 CORPORATIONS. 

be regarded as a devotional proceeding. The consequence 
was that the bargain was void, and could not be enforced. 
The owner of the steamboat ought to have said, "I cannot bar- 
gain with you as a society ; but I will lease the boat for the 
day to any responsible person whom you may name." To 
put the matter generally, every one who enters into a contract 
with a corporation does it at his own risk in this respect : if 
the transaction is foreign to the objects of the corporation, 
his claim arising from it may be surrounded with embarrass- 
ments, so as to be practically worthless ; while a contract reg- 
ularly made with a corporation, within its proper business, can 
be enforced against it without any qualification. This is all 
that can safely be said in a treatise like the present. The 
doctrine in question abounds in distinctions and difficulties, 
which cannot be appreciated by those who are unlearned in 
the law. 

While the ordinary business of a corporation is conducted 
by its appointed officers, corporate meetings are held from 
time to time for certain purposes. Provision is usually made 
in the articles of incorporation, or in the by-laws, for the 
holding of regular meetings at fixed times and places ; and 
emergencies sometimes occur, rendering it necessary to call 
special meetings. When there is no provision to the contrary, 
every member has a right to be present and to vote at each 
meeting ; and it follows that every member must be notified as 
to when and where meetings are to be held. All stockholders, 
however, are supposed to know what days are fixed in the or- 
dinary manner for regular meetings ; so that notice of such 
meetings, though frequently given, is not absolutely necessary. 
Notice must be given to every stockholder with reference to 



CORPORATIONS. 131 

any special meeting ; and if any matter, which is important 
and unusual in its character, is to be discussed at a regular 
meeting, then notice of that matter must be given. The lack 
of proper notice may cause serious trouble, and may in some 
cases even render the proceedings of the meeting null and 
void. 

The general principle, with regard to voting, is that of 
government by the majority ; but it is always provided that a 
certain number of members must be present at the meeting, 
to secure a binding vote. That certain number of members 
is called a quorum. If forty persons were to form a corpor- 
ation, each taking one share and no more, and if the articles 
stated that twenty-five should constitute a quorum, and if 
twenty-five met at a meeting duly called together, the vote of 
thirteen would be decisive. The fifteen absent members 
would be considered as agreeing with the thirteen who made 
up the majority of the quorum. 

It would not be fair to give a member possessing one share 
an equal power of voting with another who has fifty shares. 
The general rule is that the voting power shall be propor- 
tioned to the amount of stock actually held. By this means, 
corporations are sometimes led into danger. Wealthy and 
unscrupulous men manage to force down the market price of 
stock, buy it up at a low figure, secure the greater part of it 
in their own hands, and thus out-vote the smaller stockholders, 
even though the latter combine against them. The history of 
Wall Street furnishes many examples of this mischief, which 
is exceedingly difficult to remedy. 

Individual liability, it has been said, is repugnant to the 
law of corporations. That is to say, unless there is some posi- 



132 CORPORATIONS. 

tive law or special provision increasing the liability of stock- 
holders, they cannot be called upon to do more than to pay 
up the full amount of their shares, whatever may be the diffi- 
culties in which the corporation maybe involved. The stock- 
holder's liability is therefore usually limited, and differs from 
that of a partner in a firm, which is usually unlimited. In 
ordinary cases, the creditor of a corporation can look to the 
capital stock, paid and unpaid, and to the property of the 
corporation, including debts due to it, and to the surplus 
fund, if there be one; but he cannot look beyond this, to the 
private resources of the corporators. It is highly expedient 
that this state of things should exist ; for persons are thereby 
enabled to invest in various kinds of stock, without running 
the risk of losing all that they possess. 

Large corporations frequently raise money by executing 
bonds, to which coupons are attached. The character of a 
coupon-bond has been explained in Chapter IX, The bond- 
holder is a creditor, who lends so much money to the corpo- 
ration, making an investment for the purpose of periodical in- 
terest at a fixed rate ; or he is a purchaser of the bond on 
speculation, not regarding the question of interest so much as 
the probability of selling the bond again at an advanced 
price. In either case, the corporation itself is his debtor. 
His position is therefore entirely different from that of a stock- 
holder, who is, as it were, a limited partner in the concern, 
and who is entitled to a share of the profits, if there be any. 
As there ought to be no division of profits until existing debts 
are paid, it follows that the just claim of a bond-holder is 
superior to that of a stockholder. A dividend may be dis- 
tributed among stockholders, notwithstanding the existence 



CORPORATIONS. 133 

of outstanding bonds ; but no dividend must be distributed 
if the interest on the bonds is in arrears. It has become too 
common for corporations to depend on the issuing of bonds, 
rather than on the payment of capital stock, for the funds 
with which to do business. Such bonds carry with them no 
voting power, and afford a ready instrument of financial 
gambling, by means of which many have been ruined. 

A corporation may be dissolved in several ways : by the ex- 
piration of the period for which it was created ; by the sur- 
render of its charter ; by legal proceedings under which the 
charter is declared to be forfeited ; or by the act of the legisla- 
ture. In other words, if a corporation is chartered for ten 
years, and the ten years expire without any renewal of the 
charter, the corporation dies ; if the members agree to dissolve, 
they can do so by taking certain steps to that end; if the cor- 
poration abuses its pow T ers, or declines to use them, it can be 
dispatched by process of law; and the legislature may, in some 
exceptional cases, revoke the charter ; but not in such a man- 
ner as to impair contract-rights already acquired. 

When a corporation becomes financially embarrassed, the 
usual method of extricating it from its difficulties is to apply 
to a court of equity for the appointment of a receiver. The 
receiver undertakes the management of the concern until its 
affairs can be turned over into new hands, or until some other 
satisfactory adjustment can be made. Most of the railroad 
companies in the United States have been, at one time or 
another, in the hands of receivers. It has sometimes hap- 
pened that a corporation has done better, under an honest and 
capable receiver, than under its own direction. 



CHAPTER XV. 
COl^CEKXING CONVEYANCES. 



By a conveyance is meant a document which transfers the 
title to property from one person to another. The term is 
usually employed with reference to real estate. For the sake 
of convenience, this chapter will deal with conveyances of 
land, mortgages of land, bills of sale, and chattel mortgages. 

It has long been necessary for a person who conveys land 
to another to do so by executing a writing under seal, which 
is called a deed. A deed commonly begins with a set form of 
words; such as, "This Indenture Witnesseth ;" or "Be it 
known unto all men by these presents." Then should follow 
the time and place, the name of the party who executes the 
deed, a recital of the consideration or purchase-money, the 
words of conveyance, the description of the land, a reference 
to the manner in which the grantor himself obtained title, a 
statement of covenants, warranties, or conditions, if any, the 
signature and seal of the grantor, and the signatures of wit- 
nesses. The person executing the deed is commonly called 
the grantor. The usual words of transfer or conveyance are 
"Give, Grant, Bargain, Sell and Convey, " and a long history 
attaches to them; but the simple word "Convey" is enough. 
Let us suppose that Adam Bell wishes to transfer lot 8, in 
block 75, of a -certain city, to David Gray; that they both live 
there, and that the agreed price is $900. The following deed 
would be a good one : — 



CONVEYANCES. 135 

This Indenture, made the day of , 1893, between Adam Bell 

and David Gray, both of the city of -, county of , State of , 

WITNESSETH : That in consideration of the sum of Nine Hundred 
Dollars (#900) paid to the said Adam Bell by the said David Gray, receipt 
of which is hereby acknowlecged, the said Adam Bell doth Give, Grant, 
Bargain, Sell and Convey unto the said David Gray, that piece of land 
known as Lot Eight (8) Block Seventy-Five (75), in said city. To Have 
and to Hold the same to the said David Gray and his heirs forever; being 
a part of the land which Simon Young conveyed to the said Adam Bell by 

deed recorded in Deed Book No. , of said county, on page , as by 

reference thereto had will more fully appear. In witness whereof, the said 
Adam Bell hath hereto signed his name and affixed his seal, on the day and 
at the place aforesaid. 

Adam Bell. [sealI 
Executed in the presence of 

Matthew Stiles, 



r Witnesses. 
Edmund Stokes, j 

Two things combine to render this particular deed very 
short : the description of the land occupies only about a 
line, and there is no clause of warranty. In most deeds, the 
description is much longer ; and it is generally necessary to 
mention the "metes and bounds:" that is to say, the lines 
which iorm the boundaries, with the points or angles at which 
they turn, adding references to adjoining property in order to 
make the description clearer; as, for instance, "all that prop- 
erty described and bounded as follows, to wit : beginning at 
the North-east corner of Third street and Market street in the 
said city of — , and running thence eastward two hundred feet 
along Third street, thence north one hundred feet along the 
line of property of Samuel Clay," and so on. If the distance 
and quantities named do not quite correspond to the bound- 
ary-points, the latter will generally be treated as more correct; 



136 CONVEYANCES. 

for instance, in the example just given, it might happen that 
Samuel Clay's property began one hundred and ninety-eight 
feet from the corner of the streets ; but the evident intention 
of the grantor was to convey all that he had along Third 
street, as far as the boundary line. 

In discussing warranties, it should first be noticed that deeds 
of conveyance are practically divided into two classes, namely: 
quit-claim deeds, and warranty deeds. A quit-claim deed 
merely releases and gives up such title as the grantor may have 
in the land ; and it does not of itself necessarily imply that he 
has any such title. A warranty deed implies that the grantor 
has a title, and that he will protect the purchaser in a greater 
or less degree, according to the nature of the warranty clause. 
The ordinary covenant of warranty says, in effect, that the 
grantor will warrant and defend the title to the purchaser, and 
to all who derive title subsequently from him, against the law- 
ful claims of all persons claiming under the grantor; or, in 
other words, that the grantor has not conveyed the title, and 
will not convey it, to any one else. This is frequently ex- 
tended so as to defend the title to the purchaser against the 
lawful claims of all persons whatsoever; and in this form it is 
called a general warranty. If the warranty is broken, that is? 
if the title does not answer to it, and the purchaser has to give 
up the land to some one who has a superior title, he can re- 
cover upon his warranty, and his grantor must pay back the 
purchase money, with interest. This, at least, is the general 
rule. 

Another common covenant is to the effect that the property 
is free from incumbrances. This means, in general, that there 



CONVEYANCES. 137 

is no mortgage, mechanic's lien, or unpaid tax, or other 
charge upon it. If there should, in fact, be any such charge, 
the covenant ought to state that the property is free from in- 
cumbrances, with that exception. Certain other disadvan- 
tages, which need not be mentioned here, because they are 
unusual, are also called incumbrances. 

It is not necessary to refer in the deed to the origin of the 
grantor's title. Adam Bell could convey to David Gray with- 
out saying that his own grantor was Simon Young; but it is 
very desirable to give such a reference, because it assists in 
the searching of the title. 

If Adam Bell happened to be a married man, his wife ought 
to unite with him in executing the deed. The reason is this : 
a married woman, if she becomes a widow, is entitled to enjoy, 
during the rest of her life, the use of one-third of the land 
which her husband owned during the marriage. This right on 
her part is called her dower. This is an ancient right, and 
was strongly recognized by the old common law of England ; 
and, although English statutes have very nearly destroyed it, 
the right of dower has survived in most States of the Union. 
The consequence is that, if Mrs. Adam Bell did not join in 
the deed, the purchaser would take the land subject to the 
chance of her claim for life as to a part of it, in case her hus- 
band should die before her ; and no number of successive 
transfers would deprive her of this right. It is therefore nec- 
essary, in searching a title, to be sure that previous grantors 
were unmarried when they executed their deeds, or that their 
wives joined them in the execution of the same. The husband 
also has an interest in the wife's land, which is called his 
curtesy. It is even more necessary that he should join in her 



138 CONVEYANCES. 

deed, than that she should join in his; because, as a general 
rule, the deed of a married woman, executed by herself alone, 
is entirely void. Children, however, have no such interest in 
the land of their parents as to prevent their parents from deal- 
ing with it as they choose. 

A deed must be signed, sealed, and delivered. In this 
country, a scroll or flourish is usually added instead of a seal. 
By the delivery of a deed is meant some word or act by which 
the grantor signifies his wish that it shall go into effect. If he 
merely signs and seals it, and then, without showing it to any 
one, locks it up in his safe, the deed is imperfect for want of 
delivery, and will convey no title. 

Besides this, it is necessary that a deed be witnessed and 
acknowledged. In most of our States, two witnesses are 
necessary • and even where the law only requires one, it may 
be convenient to have two. So the name of Matthew Stiles 
and Edmund Stokes have been added to the deed from Adam 
Bell to David Gray. Every maker of a deed must acknowl- 
edge it before some officer appointed by the government to 
take acknowledgments. This officer is usually a justice of the 
peace, a notary public, or a commissioner of deeds ; and he 
may be one of the witnesses. The act of acknowledgment is 
a solemn statement that the party has executed the deed for 
the purposes therein mentioned, and desires it to be recorded. 
When this statement is made, the notary or other officer adds 
his certificate. If one of the parties is a married woman, she 
is to be questioned apart from her husband, and to state that 
she has executed the deed freely, without any compulsion. In 



CONVEYANCES. 139 

some States, under recent statutes, this examination need not 
be made separately; but the acknowledgment of husband and 
wife is generally necessary. 

One more thing remains, and that is to have the document 
recorded. In every county in every State in the Union, 
there is a public office for the recording of deeds and mort- 
gages. This office is usually in the county court house. The 
object of the recording system is to enable purchasers to trace 
titles correctly. A purchaser who is acting in gcod faith can 
rely on what he finds in the books of record. At the same 
time, the work of searching titles, even with this help, re- 
quires peculiar experience, and persons unaccustomed to it 
cannot safely undertake it. 

It is the purchaser's business to take the deed to the office 
for record, and to pay the necessary fee. When the instru- 
ment has been duly copied in the book, it is returned to him 
with a memorandum of the fact that it has been recorded. 

A mortgage is a conveyance of land for the purpose of se- 
curing a debt. The indebtedness is usually expressed in a 
bond or a promissory note. The person making the mort- 
gage is called the mortgagor, and the creditor who takes it is 
called the mortgagee. If the mortgagor fails to pay his debt 
when it falls due, the mortgagee can foreclose. Foreclosure 
is a proceeding by which the land is publicly sold at auction 
by the sheriff, and the proceeds are applied in payment. It 
is frequently necessary for the mortgagee to buy the property 
in at the foreclosure sale, so as to protect himself from loss; 
and he should see that it is not needlessly sacrificed. If the 
amount bid is not equal to the indebtedness, the mortgagee 
can recover the deficiency in an action on the bond or note, 



140 CONVEYANCES. 

if any, in connection with which the mortgage was given. A 
certain period is allowed, within which the debtor may re- 
deem or buy back the property, by paying the purchase money 
and interest; and this privilege of redemption also belongs to 
other persons whose rights are involved in the transaction, 
and who are therefore protected by statute. The whole pro- 
cedure of foreclosure and redemption is regulated in each 
Slate by local laws. In some States, a document called a 
deed of trust is used instead of a mortgage; but the substance 
of the matter is much the same everywhere. 

A chattel mortgage is a conveyance of something other 
than land, for the purpose of securing a debt. The word 
chattel signifies any kind of property, except real estate. In 
most of the American States, chattel mortgages are lawful, 
and statutes exist with reference to them. It is customary for 
the mortgagor to retain possession of the thing mortgaged, in 
which respect a chattel mortgage differs from a pledge. The 
effect of this naturally is to give the mortgagor a fictitious 
credit, inasmuch as he appears to be the undisputed owner of 
a thing which is in reality encumbered with a debt. To 
remedy this difficulty, it is usually provided that chattel mort- 
gages shall be filed or registered in the county where the 
transaction takes place. By this means, an opportunity is 
afforded to the public of knowing whether such encumbrances 
have been created; and, while an unregistered chattel mort- 
gage will be good as between the debtor and his creditor who 
took the mortgage, it is not good as against other creditors, 
who did not know of its existence. That is to say, they can 
prove their claims, and get judgment, and levy on the prop- 
erty, just as if it had never been mortgaged. 



CONVEYANCES. 141 

A merchant occasionally mortgages his stock of goods to a 
creditor. This transaction is obviously not intended to inter- 
fere with daily sales to customers, whereby part of the goods 
may be turned into cash. It is therefore desirable that the 
creditor who takes the mortgage should stipulate for period- 
ical payments out of the cash received, so that, as the security 
diminishes, the debt may diminish also. The document is 
sometimes so drawn up as to cover goods procured from time 
to time, to replace what has been sold. 

The system of chattel mortgages affords various opportu- 
nities of fraud, and occasionally gives rise to troublesome ques- 
tions. Many transactions of this description are good as be- 
tween the parties immediately concerned, though not so as to 
outside creditors. The person giving and the person taking 
the mortgage should act in perfect good faith, and carefully 
observe and follow the local law. Experience has shown that 
there is danger in dealing with chattel mortgages, and it is a 
safe rule to let them alone. 

A bill of sale is a document, usually under seal, whereby 
one person transfers his interest in personal property to 
another. By personal property is meant all property except 
real estate; so that l( chattels" and "personal property" are 
the same thing. The bill of sale ought to be a memorandum 
of an actual, bona fide transaction, wherein there was a seller 
and a buyer, and a price paid ; but it is frequently employed 
as a device to conceal the ownership of goods, and to hinder 
the collection of just debts. It will easily be perceived that 
this document is different from a chattel mortgage, which is 
merely a method of securing the creditor of the mortgagor, and 
does not operate as a sale. A bill of sale is occasionally drawn 



142 CONVEYANCES. 

up, when the transaction is not really a sale, but only a mort- 
gage. When this is the case, the law will regard the sub- 
stance of the thing rather than the form, and the document, 
which is in effect a chattel mortgage, ought to be registered as 
such. 

In other words, the law, as we have seen, usually provides 
for the registration of chattel mortgages, and does not pro- 
vide for the registration of bills of sale. These documents 
are different in their character, and ought to be correctly 
used, so as to describe the true nature of the transaction. If 
a bill of sale be drawn up for the purpose of securing the pay- 
ment of a loan, or some other indebtedness, it amounts sub- 
stantially to a chattel mortgage, notwithstanding its form, and 
therefore should be registered. If it is not registered, other 
creditors can deal with the property, as if the document in 
question had never been written. 



CHAPTER XVI. 



ON MISCELLANEOUS TOPICS. 



Account Stated. When parties settle up their accounts, 
and strike a balance by mutual consent, the settlement is called 
an account stated. The person against whom such balance 
appears admits thereby that he is indebted to the other, and 
promises to pay the ascertained amount. He cannot avoid 
the effect of this implied promise, except by proving mistake 
or fraud ; and, if he wishes to rely on either of these defenses, 
he ought to demand a re-statement of the account as soon as 
the mistake or the fraud is brought to his notice. 

Agency. The notion underlying an agency is, that one 
person acts in the name of another, and on his behalf. He 
on whose behalf the agent acts is called the principal. A 
clerk in a store is the agent of the storekeeper for the purpose 
of selling his goods. An engineer is the agent of the railroad 
company for the purpose of running a train. A bricklayer, 
employed by a contractor, is the agent of the contractor for 
the purpose involved in his work. The principal may appoint 
an agent by express authority, as by giving him written in- 
structions, or by telling him what to do. Even less than this 
may be sufficient ; as, where the principal, without formally 
appointing the agent, sees him acting in his name, and makes 
no objection. In some cases, the agent acts entirely without 



144 MISCELLANEOUS TOPICS. 

the knowledge of the principal, and the principal, on learning 
what he has done, ratifies the act. An example illustrating 
this point has been given on page 38, in connection with stop- 
page in transitu. 

The effect of a subsequent ratification is precisely equivalent 
to that of a previous command or request. 

The act of an agent is, in law, the act of his principal, if done 
by the express authority of the latter, or in pursuance of the 
object for which the agency exists. (See example on page 12.) 
If such act should result in injury to some third person, the 
principal would be responsible for it. If a bricklayer, em- 
ployed by a builder to construct a chimney, carelessly drops a 
hod-full of bricks on the head of a passer by, the person thus 
hurt has a right to sue the builder for damages. If the 
employee of a railroad, whose duty it is to turn a switch, 
turns it the wrong way, and a collision occurs, those who are 
injured can claim compensation from the railroad company. 
No one is allowed to excuse himself from the consequences of 
an injury occasioned by his agent or servant, by saying that 
the injury did not proceed from his own hand. Agency im- 
plies responsibility. It is therefore important to select care- 
ful and prudent servants and employees. If, however, the agent 
or servant goes entirely out of the line of his employment, 
and commits an injury on his own private account, he alone 
is answerable for it. 

Arbitration and Award. In case of a dispute or diffi- 
culty, the contending parties will sometimes agree to refer the 
matter to arbitration. They choose one or more persons, 
usually an odd number, to hear and decide ; and the decision 



MISCELLANEOUS TOPICS. 145 

thus obtained is styled an award. It is the duty of arbitrators 
to decide only such points as are submitted to them, to hear 
evidence on both sides of the case, and to act with entire fair- 
ness, casting every prejudice aside. The arbitrators must act 
together. It is not permissible for two arbitrators out of three 
to hear the controversy, and for the third to assent to the 
decision at which they have arrived. The parties are entitled 
to the benefit of the joint deliberations of all. If the arbitra- 
tors think they have heard enough, and shut out further testi- 
mony which would have thrown light on the matter, the 
award is not binding. If the award goes beyond the submis- 
sion, that is, if the arbitrators decide matters which they are 
not called to decide, it is certainly void as to the excess, and 
is likely to be void altogether. Both an agreement to submit 
a controversy to arbitration, and the award of the arbitrators, 
ought to be in writing ; and it is proper to add seals, and the 
names of witnesses. An arbitration made by order of a court 
of justice is usually called a reference, and the arbitrators so 
appointed are called referees. 

Bailment. A bailment is a transaction whereby one party, 
called the bailor, transfers a piece of movable property to 
another party, called the bailee, on the understanding that the 
thing so transferred shall be re-delivered by the bailee in 
course of time, either to the bailee himself, or to some one 
indicated by him. Examples of bailments are the loan of a 
book, the leaving of a watch with a watchmaker to be repaired, 
the sending of a parcel from Baltimore to St. Louis by express. 
If your friend lends you twenty dollars, the loan is not a bail- 
ment, because he does not expect to get back the very money 
which he lends, but its equivalent in coin or currency. If? 



146 MISCELLANEOUS TOPICS. 

however, I lend you a rare piece of money which is specifically 
to be returned, the case is different. In all ordinary cases of 
bailment, the bailee is bound to use reasonable care in preserv- 
ing the thing in question from injury ; but, where the whole 
benefit of the transaction goes to the bailee, he is chargeable 
with a higher degree of care than that which would be required 
of him, if the bailor had the whole benefit. For example, 
one who borrows a set of books, for his own reading, is legally 
bound to take better care of them than he would be, if he 
merely kept them in his house for the convenience of their 
owner. 

A familiar example of a bailment is afforded by the case of 
baggage at a hotel. The guest's trunks are in charge of the 
landlord, and the landlord is to a large extent responsible for 
their safety. On the other hand, he has a lien on the guest's 
baggage for the amount of his charges. This lien has been 
allowed to inn-keepers for hundreds of years, because of their 
obligation to entertain travelers generally. But the keepers of 
boarding-houses, unless assisted by statutes, have not a similar 
right ; nor are they responsible for a boarder's baggage to the 
same extent as a hotel-keeper is for that of his guest. Laws 
have been passed in most States of the Union, giving board- 
ing-house keepers a lien, so that they may refuse to give up 
the boarder's trunks until his bill is paid. There is a differ- 
ence, however, between a boarding-house and a mere lodging- 
house. The keeper of a house of the latter description has no 
right to detain baggage, unless expressly included in the local 
statute ; and the statutes, as a rule, mention boarding-houses, 
but not lodging-houses. 

Brokers and Commission Merchants. A broker is a 



MISCELLANEOUS TOPICS. 147 

person whose business it is to negotiate bargains between 
buyers and sellers, without handling the goods which are thus 
bought and sold. A factor or commission merchant is one 
who receives merchandise or produce from his customers, takes 
it into his charge, and sells it on their account. A broker 
usually has an office only, while a commission merchant has a 
warehouse, which is frequently adjacent to a wharf. The 
broker, as a rule, confines his attention to some particular arti- 
cle, such as wheat, or cotton, or tea, or sugar, or indigo \ and 
he keeps samples of the article in which he deals, exhibiting 
its different grades or qualities. The commission merchant 
generally disposes of all the miscellaneous produce which the 
farmer or planter raises, and does not sell by sample. It fol- 
lows from these remarks that the broker is an agent for both 
buyer and seller, while the commission merchant is an agent 
for the seller only, whose goods he handles. 

When a broker has made a bargain of the kind already 
described, he should enter it in his journal, and sign the entry. 
He should also make out separate memoranda, and deliver 
the same to the buyer and to the seller. These memoranda 
are called bought and sold notes, and may be in the following 
form : 

BOUGHT NOTE. 

Robkrt Simpson, Tea Broker. 

117 State Street, 

Boston, Mass., July 20, 1894. 
Messrs. Bradbury and Morley : 

Bought this day for your account, of Mr. A. B. French, Fifty Chests 

Pekoe Tea, ex steamer "Carnatic," at $ per 100 pounds. 

Robert Simpson. 



148 MISCELLANEOUS TOPICS. 

SOLD NOTE. 

Robert Simpson, Tea Broker. 

117 State Street, 

Boston, Mass., July 20, 1894. 

Mr. A. B. French : 

Sold this day on your account, to Messrs. Bradbury and Morley, of this 

city, Fifty Chests Pekoe Tea, ex steamer "Carnatic," at $ per 100 

pounds. 

Robert Simpson. 

These bought and sold notes ought to be made out as soon 
as possible after the bargain is consummated, and they should 
be delivered to the parties without delay. 

A commission merchant, of course, keeps an account with 
his customer, and he may render statements to him in the form 
of sold notes, if he chooses ; but it is no part of his business to 
execute a bought note, because he is not the buyer's agent. 

A broker has usually no authority to receive from the buyer 
the price of the commodity sold ; while a commission mer- 
chant is always expected to receive payment. If a broker 
negotiates a sale to some one who is unable to pay, he of 
course earns no commission. If a commission merchant, 
being authorized to sell for cash, sells on credit, he does so at 
his own risk. If he be authorized to sell on credit, he must 
use ordinary care, and avoid buyers who are not likely to pay. 
Having acted with prudence in this matter, he is not responsi- 
ble further, unless he has undertaken what is called a del 
credere commission, in pursuance of which he guarantees the 
payment of the account. The question, whether a commission 
merchant should sell strictly for cash, or allow a moderate 
credit, will depend largely on the custom of the trade. 



MISCELLANEOUS TOPICS. 149 

Commission merchants frequently make advances to their 
customers ; and they have a lien on the goods consigned to 
them, for money so advanced, and for all expenses properly 
incurred on a customer's account. When the goods are sold, 
this lien is converted into a right to deduct the amount owing 
by the customer from the cash received. 

Compromises. When parties agree to settle a dispute 
between themselves, without either going to law or requesting 
the assistance of arbitrators, such a settlement is greatly ap- 
proved by the law. Even if it should turn out, on further ex- 
amination, that the right was entirely on one side, still, if 
there were an honest difference of opinion, and an honest effort 
to close the matter, and a payment of money as the result, the 
settlement will rarely be disturbed. It is what the law calls 
an "accord and satisfaction." The accord is the agreement 
to compromise the claim, and the satisfaction is the actual 
settlement of it. If, however, the matter in dispute arises out 
of the criminal wrong-doing of one- of the parties, it is neces- 
sary to be exceedingly cautious. In many of the States, a 
misdemeanor may be compounded, but not a felony. By a 
misdemeanor is meant a criminal offense of an inferior kind; 
such as beating a man with a stick, or slandering him, or 
stealing a small sum of money from a cash box. A felony is 
a graver crime, and is usually punished by imprisonment in 
the penitentiary. The composition, or act of compounding, 
is the receiving of an indemnity or compensation for the 
injury which has been done; as, when a person has taken five 
dollars, which belonged to another, and the owner of the 
money, on discovering the theft, demands and receives repay- 
ment, and does not prosecute the offender. It is highly im- 



150 MISCELLANEOUS TOPICS. 

portant that the injured person should not make a profit out 
of the transaction. In the case just supposed, if the owner of 
the money were to take ten dollars Irom the thief, on the 
understanding that he would not prosecute him, he would be 
acting unlawfully, and he might get into trouble thereby. 
In some States, no criminal offense, whether great or small, 
can be lawfully compounded. 

Discounting. The ordinary operation of discounting a 
bill or a note consists of taking it in exchange for money, at 
a deduction from its face value. The amount of the deduc- 
tion will depend partly upon the current rate of interest, and 
partly upon the commercial standing of the persons whose 
names appear on the paper, and whose promises to pay are 
expressed therein, as previously explained. Some negotiable 
instruments cannot be discounted in the market at any price, 
because no one has sufficient confidence in the solvency of 
the persons who have promised to pay. 

For the purpose of illustrating the operation of discount- 
ing a note, let us suppose that you wish to borrow a thousand 
dollars for one year from the First National Bank of your 
city, the highest legal rate of interest being ten per cent. 
Thereupon, you execute your note, in favor of the bank, not 
for the sum of one thousand dollars with ten per cent, inter- 
est from date, but simply for one thousand dollars, payable a 
year hence. The bank, if satisfied with the security which 
you offer, will calculate the year's interest, which will amount 
to a hundred dollars, and will at once deduct it from the 
thousand dollars, handing you only nine hundred dollars. In 
so doing, it discounts your note. On considering this trans- 
action, you will preceive that the bank really receives a hun- 



MISCELLANEOUS TOPICS. 151 

dred dollars at the end of the year, upon a loan of nine 
hundred dollars, making about eleven per cent, per annum. 
Long custom has given sanction to this practice, and it is not 
considered usurious. " But," you will say, I do not by this 
means get the full thousand dollars, which I wish to borrow." 
The answer is this: if you need the full amount, you will have 
to execute your note for the sum of eleven hundred dollars. 
You will see by calculation that the bank, in discounting your 
note, would hand you the required amount, all but ten 
dollars. 

Where the rate of interest is six per cent., the bank will 
hand the borrower $940 in exchange for his note for $1000 
at one year, and his position will be so much better by reason 
of the lower rate of interest. 

Letter of Credit. A letter of credit is a document 
whereby one person requests another to advance money to a 
third, or to give him credit, up to a certain amount. When 
it is addressed to a particular individual, or to a particular bank, 
it is called a special letter of credit. Frequently, however, it 
is addressed to all persons generally ; and in that case it is 
called a general letter of credit. An example occurs when 
an American is about to visit Europe, and to travel from one 
country to another. Instead of taking a large sum of money 
with him, he can go to his banker and buy from him a letter 
of credit addressed to several bankers in London, Paris, 
Vienna, and other cities. These bankers, by an arrangement 
made with the banker here, will honor his letter of credit ; 
and by this means the traveler can obtain, in different foreign 
cities, as much money as he needs, from time to time. In 
such a case as this, the letter of credit frequently assumes the 



15.2 MISCELLANEOUS TOPICS. 

form of a circular note, and is known by that name. "Cir- 
cular notes," says a writer on this topic, "are generally, but 
not always, for specific sums, and are in fact letters of credit 
which a banking house gives to a traveler, and which are 
made available, on presentation to any one of the agents or cor- 
respondents of the house, in a long list of places, the names, 
both of the places and the agents in them, being usually 
stated in the instrument itself. These instruments are usual- 
ly transferable by endorsement, and are perhaps more like 
bills of exchange than ordinary letters of credit, but are 
not the same, nor would they be in all respects governed by 
the law of negotiable paper." 

Power of Attorney. A power of attorney is a docu- 
ment whereby one person authorizes another person to transact 
business, or to do some specified act, in the wricer's name, 
and on his account. When it is drawn up in a formal man- 
ner, it usually bears a seal and the names of witnesses, just 
like a deed of conveyance ; but these incidents are not 
necessary to it. 

Powers of attorney are always strictly construed. This 
means, that the authority conveyed will not be any more ex- 
tensive than the language which is used requires. At the 
same time, where authority is clearly given, it includes 
the power to do such things as are necessary to its proper exe- 
cution. These propositions may be illustrated by examples. 
A power to sell and convey land in the name of the owner 
does not authorize the agent or attorney to convey it away for 
nothing. A power authorizing an agent to do certain speci- 
fied acts, and also "to transact all business" on behalf of the 
principal, does not warrant the agent in transacting any of 



MISCELLANEOUS TOPICS. 153 

the principal's business except that which relates to the acts 
specified. A power to superintend and manage property 
does not enable the agent to sell and convey it away, but it 
does enable him to employ such workmen, and to purchase 
such materials, as may be necessary in the superintendence 
and management thereof. Hence, it is very desirable that a 
power of attorney, when it relates to an important subject, 
should be drawn up with extreme care ; and it will generally 
be the truest economy to consult a good lawyer about the 
matter. The words should be clear and precise. They 
should not be general, vague, and doubtful. A power au- 
thorizing an agent to dispose of real estate for the principal 
must always be executed under seal, and duly witnessed. 
Without these formalities, it does not confer sufficient author- 
ity to perform the act. 




CONCLUDING RKMARKS. 



It is more than likely that some readers will blame this 
book for containing too much, while others will charge it with 
the fault of containing too little. Those of the former opin- 
ion will find, on further examination, that no topic has been 
discussed which may not probably and easily come within the 
notice of a man of business. Those who incline to the latter 
opinion are reminded that a line must be drawn between that 
moderate knowledge which will benefit a merchant or a farmer 
and that greater measure ot learning which a lawyer ought to 
possess. 

The writer wishes to add a word of advice to those students 
in business colleges who have read thus far. You will shortly 
be scattered abroad in various parts of the country; and many 
of you will live and transact business in or near county seats. 
It is therefore to be expected that ycu will have to attend court 
sooner or later. You may not be personally engaged in law- 
suits; but you will be summoned to serve on juries, or to at- 
tend as witnesses. When this takes place, your opportunity 
for selecting a lawyer for yourself has arrived. It will not be 
difficult for you to see who prepares a case with care, and 
argues it with ability ; to discover who has the confidence of 
the court, and who has not; who conducts his clients' affairs 
honestly and diligently, and who seeks to cover up his ignor- 
ance with trickery and claptrap. And when you have a legal 
adviser whom you can trust, go to him in any important and 
doubtful case, and do not rely too much on your own judg- 
ment. 



Questions on Chapter L 

i. What is the first principle of a binding agreement? 

2. Give an example of this. 

3. What is meant by "a promise without any consideration?" 

4. Give an example; also, of a promise with a consideration. 

5. Need the values be equal, to make the agreement binding? 

6. How does the law regard minors? Who is a minor? 

7. If a young man of 19 is keeping a store, and wants to buy goods on 

credit, how can the seller deal with him safely ? 

8. How about contracts with married women ? 

9. What if their husbands have deserted them ? 

10. Does a contract made by a clerk or agent bind his employer? 

11. W 7 hat if a salesman, contrary to instructions, sells a piece of goods 

under its regular price ? 

12. Name two cases in which the law requires a writing. 

13. Name two other cases of the same kind. 

14. Give an example relating to the sale of goods. 

15. Give an example relating to guaranty of payment. 

16. What is the safe rule as to whether there should be a writing or not ? 

17. What about previous negotiations, when the Articles of Agreement 

are once signed ? 

18. As to what points ought the Articles to be very clear? 

19. Need a custom of trade be mentioned in them? 

20. Give an example. 

21. How about using legal phrases ? 

22. What is meant by executing an agreement in duplicate ? 

23. Need it be sealed or witnessed? 

24. What difference, if it is sealed and witnessed ? 

25. What documents do require seals and witnesses? 

26. What is the ordinary remedy, when an agreement is broken ? 



156 QUESTIONS. 

Questions on Chapter II. 

i . What is a bond ? Why is it so called ? 

2. How is it used, to secure performance of an agreement? 

3. Give an example. 

4. What are the two parts of a bond ? 

5. What is an executor ? 

6. What is an administrator ? 

7. What does " Peter Barlow and his assigns" mean ? 

8. Who area man's heirs? 

9. What if there is a slight default in performance? Does the whole 

sum become due ? 

10. Name some ordinary cases of agreement, in connection with which 

bonds are much used. 

11. Name some kinds of officers who have to give bonds. What is the 

condition in such cases ? 

12. What is a receiver? 

13. Explain the undertaking of a surety. 

14. What is the benefit of taking a bond with surely? 

15. What is meant by a surety "justifying?" 

16. If the surety pays, what are his rights? 

17. What if the "obligee" in the bond holds a pledge or a mortgage as 

well ? 

18. Give an example of this. 

19. What is a recognizance ? 

20. Who is the " obligee" in a recognizance ? 

21. Name some purposes for which recognizances are used. 

22. What if a prisoner, accused of stealing, cannot give such a recogniz- 

ance as is required of him? 

23. What is meant by releasing a prisoner on his own recognizance ? 



QUESTIONS. 15? 

Questions on Chapter III. 

1. In sales of what amount does the law generally require a writing? 

2. Name some incidents which will dispense with the necessity of a 

writing. 

3. A man sells goods for cash, and the buyer cannot at once pay cash, 

as agreed. What can the seller do? 

4. What if the goods are perishable, such as oranges? 

5. Can one who sells on credit, and is unpaid, go to the buyer's store 

when the account is due, and take back such goods as came from 
him? 

6. What can he do ? 

7. What is an attachment? 

8. When does an attachment issue? (As to this point, the local law 

must be examined.) 

9. When do goods begin to be at the buyer's risk ? 

10. Give an example of this. 

11. What is meant by warranting the title of goods? 

12. Give an example, in which a warranty of title had to be made good. 

13. It is said that there is no implied warranty of quality, in a sale of 

goods. W 7 hat does this mean ? 

14. How far is that rule modified ? 

15. Give an example of this. 

16. What is an express warranty? 

17. Need such a warranty be in writing? 

18. What kind of statement will amount to a warranty? 

19. Give examples. 

20. How about offers to do work, or supply goods, which will be entirely 

satisfactory ? 

21. How might this be expressed more safely? 

22. Give examples. 

23. W 7 hat warranty is there in a sale by sample ? 

24. What if there is a secret defect in the sample itself? 



158 QUESTIONS. 

Questions on Chapter IV. 

1. In case of a breach of warranty as to quality, may the buyer decline 

to take the goods ? 

2. If he has received and paid for them, what can he do ? 

3. If he has not yet paid, what can he do ? 

4. Give examples. 

5. What amount of damages ought usually to be given, in case a con- 

tract is not duly performed? 

6. If the controversy terminates in a lawsuit, who determines the amount 

of damages? 

7. When there is an agreement between the parties to a contract, as to 

how much shall be paid if it is not performed, is this agreement 
always enforced? 

8. Point out a distinction, in such cases. 

9. Give examples. 

10. What is meant by stoppage in transitu? 

11. To whom ought notice to be given ? 

12. What if the seller notifies the buyer? 

13. Give an example of stoppage in transitu. 

14. What is a common carrier ? 

15. If he receives goods and they are accidentally burned, who has to 

bear the loss ? 

16. How is it if a mob of rioters should plunder a freight train ? 

17. Or if a train of oil cars were struck by lightning ? 

18. What is included in "the act of God?" 

19. What other causes of loss will excuse the common carrier? 

20. If goods perish on the road, by " the act of God," does the seller^ 

who sent them, or the buyer, who was to receive them, bear the loss? 

21. What is a customary precaution, when purchased goods are frequently 

in transit ? 

22. When does the common carrier's peculiar risk terminate ? 

23. How far is he responsible, as a warehouseman ? 



QUESTIONS. 159 

24. Does the common carrier usually deliver goods at the address of the 

consignee, or not? 

25. What difference does this make, as to his risk ? 

26. When does a steamboat cease to be a common carrier? 



Questions on Chapter V. 



1. What is meant by an insurance ? 

2. Who is called the insurer? 

3. What kinds of insurance are there? 

4. Describe the constitution of a joint stock insurance company. 

5. What security has one who insures in such a company ? 

6. How is it, in the case of a mutual insurance company ? 

7. What is meant by a policy and a premium? 

8. Does the insurance begin at once, or only when the policy is signed ? 

9. Can a man properly insure a house that does not belong to him ? 

10. Give an instance. 

1 1 . What if insured property is sold ? 

12. How is the company's consent usually expressed? 

13. What may a common carrier insure? 

14. If a building is mortgaged, who has an "insurable interest," and to 

what extent ? 

15. On what valuation may a retail merchant insure his stock? 

16. What is " over insurance ?" 

17. For whose benefit may a man insure his own life ? 

18. When may he insure another person's life for his own benefit ? 

19. How about the case of debtor and creditor, as to life insurance? 

20. What is to be avoided in all these transactions ? 

21. For how much may a life be insured? What exception? 

22. How are warranties and representations, introduced into an applica- 

tion for insurance, regarded ? 

23. In filling up such an application, what precaution is desirable ? 



160 QUESTIONS. 

24. In case of an application for life insurance, how about a statement 

that the person is in "good health," or that his " habits " are "tem- 
perate? 

25. If it is stipulated, in a fire insurance policy, that the insured may not 

"keep or have" any explosive materials in the house, how will such 
a stipulation be understood ? 

26. How as to a proviso, that the policy shall become void, if the prem- 

ises are at any time "vacant or unoccupied?" 

27. Has an insurance agent an unlimited power to waive the performance 

of stipulated conditions ? 

28. As to promptness of payment, how does the matter stand ? 

29. In what kind of insurance is prompt payment of premiums most 

important? 



Questions on Chapter VI. 

1. Why is the existence of negotiable paper necessary ? 

2. Why is a greenback worth anything ? 

3. If the United States government were to put in circulation ten times 

as many greenbacks as there now are, what would be the result ? 

4. How is it that no one ever sees an Ohio dollar, or a five dollar bill of 

the State of Wisconsin ? 

5. What does the term "negotiable paper" include? 

6. What does "negotiability" mean? 

7. How about a warehouse receipt ? 

8. If the maker of a promissory note has made a part payment to a prior 

holder of it, does this fact affect the present holder ? 

9. On what points does this matter depend ? 

10. Give an example. [The note made by Andrews.] 

11. How did bills of exchange originate? 

12. Define a bill of exchange. 

13. How many parties are there, at first, to a bill of exchange, and by 

what names are they called ? 



QUESTIONS. 161 

14. In the example relating to London and Genoa, state who these parties 

respectively were. 

15. Define a promissory note. 

16. What differences are there between a promissory note and a bill of 

exchange ? 

17. What does "value received" mean ? 

18. Tf those words were left out, what then ? 

19. ''Samuel Finley or order." What does that mean? 

20. How would Finley give his order, in such a case ? 

21. Would any other words make the paper negotiable ? 

22. What is meant by endorsement ? 

23. What is a blank endorsement ? 

24. What is an endorsement in full ? 

25. Does the act of endorsement, by itself, transfer the paper ? 

26. When may commercial paper be transferred without any endorse- 

ment ? 



Questions on Chapter VII. 



1. Is a note payable in wheat fully negotiable? 

2. Is it negotiable in any sense ? 

3. As to what points must there be certainty of expression ? 

4. W 7 hat of a note promising to pay so much as John Buchanan shall 

find to be due ? 

5. What if there be a discrepancy as to amount between the words and 

the figures ? 

6. If no time of payment be named, how then? 

7. What of a promise to pay "when I am able," or "when my grand- 

father dies?" 

8. W T hat if no place of payment be mentioned? 

9. If a note or a bill fails in certainty, on some particular point, is it on 

that account entirely worthless ? 
10. How about a promise to pay $500, "when my old mill is sold ?" 



162 QUESTIONS. 

1 1. How does the drawee of a bill signify his promise to pay it ? 

12. What is he then called? 

13. Is a signature in pencil legally binding ? Or a mere signing of one's 

initials ? 

14. What if a man cannot write ? 

15. If Solomon Miller asks Stephen Jackson to accept a bill in his name> 

how ought Jackson to sign ? 

16. How ought an executor or a trustee to sign commercial paper ? 

17. What about the use of hand-stamps for signatures? 

18. Ought a note or a bill to be sealed? 

19. How as to a provision in a note, that, in case of an action at law to 

recover the amount, the maker will pay ten per cent, additional as 
attorney's fee ? Is this good in your own State ? 

20. How does commercial paper usually originate ? 

21. What is accommodation paper ? 

22. What is the object of signing as an accommodation party ? 

23. When the paper gets into the hands of a merchant in the ordinary 

course of business, can the accommodation party defend on the 
ground that he received nothing for signing? 

24. Can he ever defend on that ground, against any one ? 

25. If a note fails to mention interest, when does interest commence ? 

26. How as to a promise to pay $500, in 6 months, with interest? 

27. How would you express a promise to pay $500, in 6 months, with 9 

per cent, from date ? 

28. What is the ordinary rate of interest in the State in which you live ? 



Questions on Chapter VIII. 

If a man holds a note which is already endorsed in blank, and trans- 
fers it by mere delivery, what responsibility does he assume ? 

What is the undertaking of one who transfers by endorsement and 
delivery ? 

What does the word ?naturity mean? 



QUESTIONS. 163 

4. What are days of grace ? 

5. What if the last day of grace falls on a Sunday ? 

6. How may an endorser enlarge his liability? 

7. How may he restrict it ? 

8. What does the expression "without ?'ecourse" mean ? 

9. Does it impair the negotiability of the instrument ? 

10. What is the effect of an endorsement, "pay to A. B. only?" 

11. What is the meaning and effect of an endorsement "For collection?" 

12. How are such collections usually made? 

13. May a note or a bill be endorsed away for an amount less than the 

value expressed on its face ? 

14. Here is a note endorsed by the payee to Samuel Tyler, and by him to 

the holder, and it is just due. In what order are the parties liable 
on it ? 

15. If Samuel Tyler has to take it up, what right does he acquire ? 

16. What is the position of the acceptor of a bill ? 

17. In what order are the parties to a bill liable on it? 

18. May a bill be accepted conditionally ? 

19. May it be accepted as to half of the amount called for ? 

20. Is the payee bound to take it, with either of these qualifications ? 

21. If he takes an acceptance in part, what should he do? 

22. For what two things may a bill be protested ? 

23. When a bill falls due, is the acceptor to seek the holder, or is the 

holder to seek the acceptor? Give your reason. 

24. Would it be proper for the holder simply to mail it to the acceptor, 

and request payment ? 

25. If the holder lives in Boston, and the acceptor in Chicago, what should 

the holder do? 

26. At what place or house should demand be made ? 

27. What if the acceptor is out of town for a week ? 

28. What if he has changed his address? 

29. What if the person in charge says the acceptor has "moved out 

West?" 

30. What if a bill is made payable at the First National Bank ? 

31. If the bank is closed when the bill falls due, how then ? 



164 QUESTIONS. 

32. If the bill has been accidentally burned, does that circumstance relieve 

the holder from the duty of demanding payment ? 

33. If it has been lost, together with the holder's pocket-book, what ought 

the acceptor to do ? 

34. As regards the acceptor's responsibility, is prompt presentment for 

payment necessary ? 

35. In what respect is it important ? 

36. A bill containing a blank endorsement is stolen from the holder, and 

negotiated. What right does the new holder acquire ? 



Questions on Chapter IX. 



1. Describe what is meant by protesting a bill. 

2. Is it correct for the notary to certify that the holder made demand, 

and was refused? 

3. Is anything further necessary, when the certificate of protest is signed 

and. sealed? 

4. Need a promissory note, which is duly presented and not paid, be 

protested ? 

5. What if there is no notary in the neighborhood ? 

6. After demand and refusal, who ought to be notified ? 

7. What form should the notice take ? 

8. With how much promptness ought it to be served ? 

9. If the holder gets to the endorser's office just after business hours, and 

finds it closed, is his last chance gone ? 

10. What if the endorser lives a hundred miles away ? 

11. If there is a mistake or omission in a note or a bill, what should the 

holder do ? 

12. Why should he not make the alteration himself? 

13. What is meant by an immaterial alteration ? 

14. Give an example or two. 

15. Give examples of alterations which are material. 

16. What is the consequence of a material alteration made by the holder? 



QUESTIONS. 165 

17. What if it be fraudulent, as well as material? 

18. What if paper, which has been materially altered, goes into circu- 

lation ? 

19. What if a note has been raised in amount by the filling up of blanks ? 

20. What is a coupon bond ? 

21. By whom are such bonds issued? 

22. To what disadvantage are holders of State bonds exposed ? 

23. What is a municipal bond ? 

24. Under what circumstances can such a bond be lawfully issued ? 

25. Name some purposes which will be considered public. 

26. How about bonds given by a city to help a railroad ? 

27. Or to induce a company to locate a factory within the city limits ? 

28. What is a Bill of Lading ? 

29. What are the sender and receiver sometimes called ? 

30. How are Bills of Lading transferred ? 

31. To what extent are they negotiable ? 

32. What is a warehouse receipt ? 

^2- Does the statute of your State take any notice of warehouse receipts? 

34. What is a certificate of deposit ? 

35. What is a bank note ? 



Questions on Chapter X. 



1. What is a bank check ? 

2. Wherein does it resemble a bill of exchange ? 

3. Wherein does it differ from a bill of exchange ? 

4. What is a "post-dated" check ? 

5. What is the use of post-dating a check ? 

6. Give an example of this. 

7. How can payment of a check be stopped ? 

8. Why is delay in presenting a check dangerous ? 

9. What amounts to prompt presentment ? 
10. What if the bank is at a distance ? 



166 QUESTIONS. 

ii. If the holder is a week late in presenting the check, and finds that 
there are no longer any funds of the drawer in the bank, what can 
he do ? 

12. What if the check was payable on the f8th, and the holder forgot to 

present it until the 29th, and the bank closed its doors on the 28th ? 

13. What is meant by certifying a check ? 

14. What is the effect of this transaction ? 

15. To what other document is a certified check equivalent? 

16. What great difference is there between the acceptance of a bill and 

the certifying of a check, so far as the further liability of the drawer 
is concerned ? 

17. Who may certify a check on behalf of the bank ? 

18. Describe the duties of a bank cashier. 

19. What is a teller? 

20. When is the act of certif)ing worthless? 

21 . If the bank pays a forged check, who has to bear the loss ? The bank 

or he whose name has been forged ? 

22. Would any circumstance alter this rule? 

23. Ought the teller to pay a check, when the body of it is not in the 

drawer's hand writing? 

24. What if the check has been skillfully raised? 

25. Give an example, showing the danger of signing checks in blank, 

and so leaving them. 

26. When a debtor gives his creditor a check for the amount of the debt, 

does that act constitute payment ? 

27. W 7 hat is meant by "legal-tender?" 

28. Is a check "legal-tender ?" 

29. What does the term stiictly include? 

30. If a promissory note falls due, and the maker offers his check in pay- 

ment, what precaution is sometimes useful ? 

31. Ought an agent for the collectkn of what is due on a negotiable 

instrument to take a check in exchange for it? 



QUESTIONS. 167 

Questions on Chapter XI. 



1. What is an " unsecured debt ?" 

2. What is meant by guaranteeing payment ? 

3. Is any formality necessary, to render a guaranty binding on the guar- 

antor ? 

4. What are " Statutes of Limitations?" 

5. If a creditor has dunned his debtor every quarter, does that keep the 

debt from being outlawed ? 

6. Within what time, in your own State, can an action be brought on a 

sale of merchandise? 

7. What circumstances will revive the debt for a new period ? 

8. What is an attachment ? 

9. What must the creditor do before the attachment issues ? 

10. W 7 hen does an attachment usually issue ? Under what circumstances? 

1 1 . How is this in your own State? 

12. What is an execution ? 

13. Who conducts this proceeding ? 

14. What is taken first? 

15. What is meant by personal property ? 

16. What is an exemption ? 

17. Is there any homestead exemption in the State in which you live? 

18. What is meant by waiving an exemption ? 

1 g. I?i your own' State, can a debtor lawfully waive his exemption? 

20. If a debtor has little or nothing, is it ever advisable to prosecute a 

claim against him ? 

21. If he has moved into another State, without leaving any property be- 

hind him, is a judgment, pronounced in the State he has left, good 
for anything ? 

22. A judgment is said to be a lien on the real estate of the judgment 

debtor. What does that mean? 

23. To zvhat extent is this the case in your own State? 

24. Explain by an example what an ordinary lien is. 

25. If possession is given up, what becomes of the debt and of the lien? 



168 QUESTIONS. 

26. Who have liens, besides those who make repairs of articles left with 

them for that purpose? 

27. What is a factor ? 

28. What is meant by a mechanic's lien ? 

29. How is such a lien acquired ? 

30. What persons , in you r own State, have sucJi a lien? 

31. Explain what is meant by garnishment. 

[The questions here printed in italics can only be answered by exam- 
ining the local statutes. They are all of great practical import- 
ance.] 



Questions on Chapter XII. 

1. What is a partnership ? 

2. What may the partners severally contribute ? 

3. If there is no special agreement as to the division of profits, how are 

they to be distributed ? 

4. Need an agreement for a partnership be in writing ? 

5. What points ought articles of agreement to state in a definite manner? 

6. Why is it desirable to be explicit as to the time during which the 

partnership is to last ? 

7. What provision is sometimes made as to the execution and endorse- 

ment of commercial paper? 

8. If A., B., and C. form a partnership, and it is provided that no one 

but A. shall deal with commercial paper in the name of the firm, 
and nevertheless B. makes a note in that name, is the firm bound 
to pay the note ? 

9. A partnership involves mutual agency. What does this mean? 

10. If one partner gives a note in the name of the firm, as payment for a 

quantity of furniture which he has bought for his own private house, 
and the furniture dealer presents it when due, can the firm be made 
to pay ? 

11. What circumstances would render the firm liable, on a note like that? 

12. What is a dormant partner? 



QUESTIONS. 169 

13. What are his rights and liabilities ? 

14. What is a nominal partner? 

15. Can a majority of the partners introduce a new partner into the firm? 

16. What effect has the death of one partner ? 

17. If the senior member of a firm has an invalid daughter, and dies, 

leaving a $20,000 interest in the firm to her, and the other partners 
assent, does this make her a partner ? 

18. If partners disagree concerning the prudence of some proposed bar- 

gain, how is the difference to be settled? 

19. If three partners out of four, in a wholesale grocery firm, wish to buy 

a quantity of boots and shoes which are to be sold off at auction, 
and to sell them again by the box, and the fourth partner is not 
willing to deal in anything but groceries, how then ? 

20. If one partner, on his own credit, borrows money, and it is used by 

the firm in its business, can the lender charge the firm with the 
debt, on that partner's failure to pay? 

21. What things may any partner in a mercantile concern do in the name 

of the firm, so as to bind it ? 

22. Name some of those things which require the concurrence of all the 

partners. 

23. What is meant by confessing judgment ? 

24. If one partner cannot pay his private debts, what can his creditors do? 

25. If the firm cannot pay its debts, what can its creditors do? 

26. With reference to this, what is meant by "the right of contribution?" 

27. A partner in a machine shop owes $500, and cannot pay it. Can his 

creditors take in execution a machine in the shop, which is worth 
#5 00? 



Questions on Chapter XIII. 



1. Is a retiring partner responsible for the existing debts of the firm ? 

2. Under what circumstances is he responsible for debts of the firm, 

contracted after he went out ? 



170 QUESTIONS. 

3. What arrangement can sometimes be made, so as to relieve him from 

responsibility for the firm's old debts ? 

4. Need the creditors consent to this, unless they choose? 

5. Name some ways in which a partnership can be dissolved. 

6. If the business is being carried on so as to threaten great financial 

loss, and one partner out of four refuses to dissolve it, have the 
other three any remedy ? 

7. What is a " limited " or " special " partnership ? 

8. Can persons become limited partners in a firm, simply by agreeing to 

be regarded as such? 

9. What is the " good-will" of a business? 

10. If Mr. Dayton makes scissors, and sells them under his name, may 

Mr. Jenkins, who also makes scissors, stamp them as " Dayton's 
scissors ?" 

11. What would be the right of a second Mr. Dayton, under similar cir~ 

cumstances ? 

12. How does the principle of this matter apply to the titles of news- 

papers ? 

13. Of what may a trade-mark consist? 

14. What is the purpose of a trade-mark? 

15. Would " Skidmore's Griffin soap" be a good trade-mark ? 

16. How about " Desiccated Codfish ?" 

17. There must be something arbitrary in a trade-mark. What does 

this mean ? 

18. Can one person appropriate the symbol I X L, so as to exclude 

ethers from using it ? Why is this ? 

19. What of a trade-mark which expresses an untruth? 

20. What is meant by infringement? 

21. What degree of similarity will constitute an infringement? 

22. What court will restrain an infringement? 

23. Can the injured party obtain any other remedy ? 



QUESTIONS. 171 

Questions on Chapter XIV. 

1. What is a corporation ? 

2. If a corporation is composed of twelve persons, and does business, 

and two of the members die, does this affect the power of the cor- 
poration in any way ? 

3. What is meant by a municipal corporation ? 

4. Name some prominent examples of private corporations. 

5. What is meant by a charter ? 

6. In many States no actual charter is given. What is done instead? 

7. What is the practice in your ozvn State? 

8. What is meant by capital stock ? 

9. Can the shareholders lawfully resolve that there shall be no further 

call as to the unpaid portion of their shares ? 

10. W T hy is an agreement, that a stockholder may pay in anything except 

money, bad ? 

11. What is the duty of directors ? 

12. If the directors, though honest and diligent, are incompetent, what 

remedy is there ? 

13. In what case are they personally liable to the stockholders for losses 

sustained in the business ? 

14. Who are usually the active officers of a corporation ? 

15. W T hat position do they occupy in relation to the stockholders and the 

directors ? 

16. W 7 hat are by-laws, and who makes them ? 

17. What qualities are necessary to the validity of a by-law ? 

18. Give an example of an unreasonable by-law. 

19. In making a contract with a corporation, what point should be care- 

fully observed ? 

20. What two kinds of corporate meetings may be held ? 

21. What is the right of a stockholder, as to notice ? 

22. What is meant by a quorwm? 

23. Show under what circumstances the unanimous vote of thirteen 

members out of forty will control the whole body. 



172 QUESTIONS. 

24. What danger results from the principle of allowing one vote for so 

many shares of stock ? 

25. Is there any difference between the liability of a stockholder, and 

that of the member of a mercantile firm, in case the concern should 
fail? 

26. What is the difference between a stockholder and a bondholder ? 

27. Has a bondholder any vote in the meetings of the corporation? 

28. Name some ways in which a corporation may come to an end. 

29. What is frequently done when a corporation is running into debt ? 



Questions on Chapter XV. 

1 . What is a conveyance ? 

2. How is land conveyed by one person to another? 

3. With what Avords does a deed usually begin? 

4. What is the person executing it commonly called ? 

5. What are the usual words of conveyance ? 

6. What are "metes and bounds ?" 

7. If the distance named does not quite correspond with the boundary, 

which will be adhered to ? 

8. What is a quit-claim deed ? 

9. What is a general warranty ? 

10. What if a warranty of title is broken ? 

11. What is generally meant by a covenant that the property is free from 

incumbrances ? 

12. What is meant by the word dower? 

13. If a married man executes a deed of land, and his wife does not 

unite in it, what consequence follows ? 

14. Has a husband any interest in his wife's land? 

15. Can a parent convey away his land without consulting his children ? 

16. W T hat is meant by the delivery of a deed ? 

17. What is necessary, besides signing, sealing and delivery ? 

18. Who usually takes acknowledgments ? 



QUESTIONS. 173 

19. What is necessary, in the acknowledgment of a married woman ? 

20. What is the object of the recording system ? 
2 J. What becomes of the deed itself? 

22. What is a mortgage ? 

23. What is meant by foreclosure ? 

24. What if the debt is $1800, and the land only brings $1200 ? 

25. What is meant by redemption ? 

26. What is a chattel mortgage ? 

27. As regards possession, wherein does a chattel mortgage differ from a 

pledge ? 

28. What has to.be done with a chattel mortgage? 

29. Is an unregistered chattel mortgage worth anything ? 

30. What precaution is desirable, in taking a mortgage on a stock of goods? 

31. Can such a mortgage be made to cover goods bought afterwards, to 

replenish the stock in trade ? 

32. What is a bill of sale ? 

33. Distinguish this document from a chattel mortgage. 

34. When should a bill of sale be registered ? 



Questions on Chapter XVI. 



1. What is an account stated? 

2. What is admitted by the person against whom the balance appears ? 

3. Can he in any way get rid of this admission ? 

4. Give some examples of agency. 

5. How may an agent be appointed in ordinary cases ? 

6. What is meant by ratification ? 

7. Is the act of an agent always binding on the principal ? 

8. What if he does some injury to a third person ? 

9. What is arbitration ? 

10. What is the decision of the arbitrators called? 

11. May two out of three hear and decide ? 

12. What if the arbitrators decline to hear all the testimony ? 



174 QUESTIONS. 

13. What is a reference ? 

14. What is a bailment? 

15. If a man borrows five dollars, is that loan a bailment ? 

16. Give an example of a loan which would be a bailment ? 

17. How much care must the bailee exercise ? 

18. What is a broker ? 

19. What is a commission merchant ? What is he sometimes called? 

20. Point out some differences between the two. 

21. Name some commission merchants in the place where you now are. 

22. What should a broker do, when he has made a sale ? 

23. What are bought and sold notes ? 

24. Does a broker usually receive payment from the buyer ? 

25. What if a broker negotiates a sale to a man who cannot pay ? 

26. What if a commission merchant sells to a man who is insolvent ? 

27. What is a del credere commission? 

28. When may a commission merchant sell on credit ? 

29. What does his lien amount to ? 

30. If parties compromise a dispute, may the question be re-opened in a 

court of law ? 

31. What if it turns out that they mistook their rights ? 

32. May criminal offenses be compromised ? 

^. Explain the operation of discounting a note. 

34. On what does the rate of discount depend ? 

35. If a bank, in discounting a note, gets more than the highest legal rate 

of interest, is this considered usurious ? 

36. What is a letter of credit? 

37. When is it general and when special ? 

38. How is it of use when a person travels abroad ? 

39. What form does it commonly take, in that case ? 

40. What is a power of attorney ? 

41. How is it construed ? 

42. What does this mean ? 

43. Give example. 

44. How as to a power to superintend and manage property ? 

45. How as to a power to convey real estate ? 



FORMS OK DOCUMENTS. 



ACCEPTANCE : 
[See Bill of Exchange.] 



AGREEMENT. 



This Agreement, made the 15th day of May, A. D. 1893, between 
George Howard and Isaac Johnson, both of the city of Hartford, 
and State of Connecticut, 

Witnesseth : The said George Howard undertakes to construct 
an ice-house for the said Isaac Johnson, at the northwest corner of 
said Johnson's property, known as 36 Market Street, in said city, 
within three months from this time, according to the plans and 
specifications hereto annexed. Said Howard is to supply all materi- 
als and labor, and said Johnson is to pay him, upon completion of 
said work, the sum of Two Hundred and Fifty (250) Dollars in 
U. S. Gold Coin. 

Ill Witness Whereof, we have hereunto set our hands and seals, 
on the day and year above written. 

George Howard. 
Isaac Johnson. 

(As to witnessing and sealing, see Chapter I. These precautions are 
customary and proper, though not required by law.) 



176 FORMS OF DOCUMENTS. 

ARBITRATION. 

Whereas a controversy has arisen between Kenneth Longley 
and Martin Nelson concerning the non-performance by said Nelson 
of an agreement between them, made the 25th day of March A. D. 
1894, for the delivery by said Nelson to said Longley of a certain 
traction engine at the stipulated price of Fifteen Hundred Dollars ; 
and whereas the said parties desire to settle the controversy with- 
out a lawsuit : 

Now Therefore the said parties agree to submit the said con- 
troversy to the decision of Owen Parsons, of this city ; and they 
covenant each with the other that the amount of damages ap- 
praised by him for breach of the said agreement shall be final, and 
that they and each of them will abide by his decision thereupon. 

In Witness Whereof, the said parties have hereto set their 
hands and seals, in the City of Cleveland, and State of Ohio, this 
14th day of August, A. D. 1894. 

Kenneth Longley . [seai/] 
Martin Nelson. [seai,] 

(The same remarks apply here, as to witnessing and sealing. The ad- 
dition of seals is desirable, because the word covenant is used in the law 
with reference to sealed instruments. This is not, however, necessary. 
The decision or "award" of the arbitrator is also usually given under seal, 
as in the following example. ) 



Whereas a certain controversy between Kenneth Longley and 
Martin Nelson, concerning an agreement made between them on 
the 25th day of March, A. D. 1894, was by them submitted to me, 
as arbitrator, on the 14th day of August, in the said year : 



FORMS OF DOCUMENTS. 177 

Now Therefore be it known: That I, Owen Parsons, after 
hearing evidence concerning said agreement and the breach there- 
of, and being acquainted with all facts material thereto, decide 
that Martin Nelson is indebted to Kenneth Longley in the sum o 
Seventy Five (75) Dollars, in gold, as damages for breach of said 
agreement ; and this is my award, given the eleventh day of Oc- 
tober, A. D. 1894, in the City of Cleveland, and State of Ohio. 

Owen Parsons, [seai,] 

(In cases of importance, it is usual to select three or five arbitrators, and 
to agree to abide by the decision of the majority.) 



ARTICLES OF PARTNERSHIP. 



This Agreement, made the 23d day ofMay, A. D. 1894, between 
Ouintus Randolph and Stephen Thomson, both of the City of 
Denver, and State of Colorado, Witnesseth: 

The said parties hereby constitute themselves a copartnership 
under the firm name of Randolph and Thomson, for the period of 
six years from the present date, for the purpose of buying, selling 
and dealing in dry goods and fancy goods, in said city. , 

The said Randolph has contributed to the use of said partner- 
ship the sum of Twelve Thousand (12000) Dollars, and the said 
Thomson has contributed thereto the sum of Six Thousand (6000) 
Dollars ; and it is agreed that they both shall give constant per - 
sonal attention to the business of the same. 

And it is further agreed that the books of the copartnership 
shall be kept by the said Thomson, as apart of his aforesaid under- 
taking, and that he shall strike a balance and render an account 
half yearly, at the close of the months of June and December ; and 
that the profits of the business shall be divided in the following 
proportion, to wit : Three-fifths to said Randolph, and two-fifths 



178 FORMS OF DOCUMENTS. 

to said Thomson. And all negotiable paper which shall be made, 
accepted, or endorsed in the name of the firm, shall be signed in 
that name by the said Randolph only. 

In Witness Whereof, the said parties have hereto set their 
hands and seals, on the day and at the place aforesaid. 

Quintus Randolph. [seaiJ 
Stephen Thomson. [seai,] 

(This agreement, also, ought to be witnessed, though the law does not 
require it. The articles of copartnership may be indefinitely varied by 
special provisions. Where the document is long, or the terms of the agree- 
ment complicated, legal assistance should be called in.) 



BII,I, OF EXCHANGE. 



[i.] $200. Chicago, January 8, 1894. 

At sight, pay to the order of Alexander Burrell Two Hundred 
Dollars, and charge the same to the account of 

To Ellis, Gray & Co., ") Charges Downing. 

Richmond, Va. j 

[2.] #600. New Orleans, January 15, 1894. 

At thirty days sight, pay to the order of Horace Irving Six 
Hundred Dollars, and charge the same to the account of 



James Kingsborough. 

To Ivouis Martin, 1 

Galveston, Texas. J 

(The first of these documents is a "sight-draft," and the second is a 
"time-draft." A bill commencing "Thirty days after date," that is, after 
the date of the bill itself, would also be a "time-draft," because payable at 



FORMS OF DOCUMENTS. 179 

a fixed day. Both of these documents are "foreign" bills of exchange. A 
bill drawn in Chicago on Peoria, or in Houston on Galveston, would be 
an "inland" bill. A bill drawn in an American city on a European city 
would, of course, be "foreign." The only practical difference is that pro- 
test is more necessary in case of a "foreign" than in case of an "inland" 
bill, when payment is refused.) 



acceptance;. 



This would not be necessary as to the sight draft drawn by 
Charles Downing, because Ellis, Gray & Co. are asked to pay im- 
mediately; but Mr. Martin should accept Mr. Kingsborough's draft 
by writing across the face of it : 

Accepted, January — th, 1894, 

Louis Martin. 

He then hands it back to Mr. Irving, who keeps it until it falls 
due, or else endorses it away. 



bill, OF SAIvK- 



Know all Men by these Presents, that I, Thomas Upton of 
Knoxville, Tennessee, in consideration of the sum of Three Hun- 
dred (300) dollars to me in hand paid by Vincent Williams, of 
Chattanooga in said State, the receipt of wdiich is hereby acknowl- 
edged, have sold and conveyed, and do by these presents sell and 
convey to said Vincent Williams, his executors, administrators, 
and assigns, the following personal property, to wit: (here it is to 
be particularly described, as in an inventory or catalogue.) And I 



FORMS OF DOCUMENTS. 

do hereby warrant the title to the said property to the said Vin- 
cent Williams, his executors, administrators, and assigns, against 
the lawful claims of all persons whatever. 

Witness my hand and seal the 29th day of January, A. D. 1895. 

Thomas Upton, [seai/j 

(This form might be shortened, by the omission of all reference to Mr. 
Williams's executors, administrators and assigns, without any practical dis- 
advantages. The dause of warranty of title, though usual, is superfluous, 
because, as we have seen in Chapter III, the law implies such a warranty? 
when a sale is fairly made. The principal legitimate use of a Bill of Sale 
is to convey personal property which is at a distance from the owner, or 
which is so placed that he cannot actually deliver it to the buyer.) 



BOND. 



Know all Men by these Presents, that we, John G. Young, as 
principal, and Z. T. Adams, as surety, are held and firmly bound 
unto Benson Collier in the sum of Bight Thousand (8000) Dollars, 
to be paid to the said Benson Collier, his executors, administrators, 
and assigns: for the payment whereof we jointly and severally bind 
our heirs, executors, and administrators. 

Now the condition of this Bond is such that, whereas the said 
Benson Collier has engaged the said John G. Young as his cashier 
and book-keeper for the term of one year from the present date, 
and the said John G. Young has accepted said employment, if the 
said John G. Young shall well, honestly, and faithfully perform 
the duties of the same, then this obligation is to be void, other- 
wise to be and remain in full force. Dated in the City of Boston 
and State of Massachusetts the 29th day of January, A. D. 1894. 

John G. Young, [seai,] 
Z. T. Adams. [seal] 



FORMS OF DOCUMENTS. 181 

Sealed and delivered in the pres-~] 
ence of ns as witnesses : 

DANiKiy Baton. 
Francis Gardiner. J 

(The purpose of Mr. Collier in taking this bond is to secure himself 
against any possible fraud or negligence on the part of Mr. Young, who is 
about to take a responsible position in his store. The chief value of the 
bond consists in the fact that Mr. Adams, who signs as surety, is a man of 
position and wealth. Should Mr. Young abscond with $1500, Mr. Adams 
will not be made to pay Mr. Collier more than he has lost. See Chapter II.) 



CHATTEL MORTGAGE. 



Be it Known by these Presents, that I, Harrison Ives, of the 
City of St. Paul, State of Minnesota, being indebted to Jeremiah 
Knowles, of said city, in the sum of Seven Hundred and Fifty 
Dollars, with interest from the first day of March A. D. 1894, at 
the rate of eight per cent per annum, for the purpose of securing 
the payment of the said indebtedness, and of the interest thereon, 
do hereby convey, transfer, and assign to the said Jeremiah 
Knowles the personal property now to be described, that is to say : 
(Here follows an itemized description of the property, as in an in- 
ventory or catalogue.) 

This conveyance is executed as a mortgage of the aforesaid 
property, upon condition that if the said Ives shall pay to the said 
Knowles the said principal sum of Seven Hundred and Fifty (750) 
Dollars within two years from the first day of March, A. D. 1894, and 
shall pay the annual interest thereupon as it falls due, then this 
conveyance is to be void ; but if the said Ives shall fail to pay 
the said principal or the said interest as aforesaid, then the said 
Knowles shall have power to enter and take possession of the said 



182 FORMS OF DOCUMENTS. 

property, or any part thereof, and to sell the same, and to apply 
the proceeds of such sale to the payment of so much of the said 
indebtedness as shall be due when such sale is made, and to the 
discharge of all expenses incurred in making the sale. 

In witness whereof, I have hereunto set my hand and seal this 
ist day of July, A. D. 1894. 

Harrison Ives, [seai,] 

Executed in the presence of \ 
Levi Mortimer. J 

(It may be prudent, in some cases, to provide that the creditor shall sell 
at public auction only, or to stipulate that the goods shall not be sold below 
an agreed valuation.) 



CHECK. 



No. 15. IvOWEiyiy, Mass., July 22, 1893. 

The Manufacturers' National Bank. 

Pay to N. B. Osborne, or order, $87.50- 

Kighty-seven and 50-100 Dollars. 

Phiup Quackenbush. 

(This check might have been made payable to N. B. Osborne, or bearer, 
but it would then be subject to this disadvantage, that in case of Mr. Os- 
borne's losing it, some dishonest person might get possession, and present 
it. Checks should always be drawn u to order," for the sake of greater 
safety, either as in the form here given, or " Pay to the order of so and so.*' 
The " No. 15 " refers to a corresponding number to be marked on the stub 
of the check, which ought also to contain a memorandum of the amount, 
date and payee. The bank will deface the check when paid, and return 
it to the depositor when his account is made up. 



FORMS OF DOCUMENTS. 183 

CONTRACT. 
[See Agreement.] 



DEED OF CONVEYANCE OF LAND. 

[See Chapter XV.] 

(If this conveyance is to be merely a quitclaim deed, it should run thus, 
after the commencement: — "the receipt of which is hereby acknowledged, 
the said Adam Bell doth Convey, Release, and Quitclaim unto the said 
David Gray all his estate, right, title, and interest in and to that piece of 
land known as, etc." If it is intended that the grantor should convey with 
warranty, a clause to that effect must be added to the form given in Chap- 
ter XV, thus : "And the said Adam Bell doth covenant with the said 
David Gray, that he will, and his heirs, executors, and administrators shall 
warrant and defend the same to the said David Gray, his heirs and 
assigns, against the claims of all persons claiming under the said Adam 
Bell ;" or, more generally, " against the lawful claims of all persons what- 
ever : In witness whereof, etc.") 

DRAFT. 

[See Bill of Exchange.] 



ENDORSEMENT. 

On the Bill of Exchange already drawn by Charles Downing on 
Ellis Gray & Co., Alexander Burrell is the payee and first endorser. 
If he simply writes his name across the back of the bill, he endorses 
in blank. He can endorse specially to Reuben Sanders by writing 
across the back of the bill — 

Pay to the order of Reuben Sanders. 

Alexander Burrell. 
He can make a " restrictive endorsement" by writing — 
Pay to Retiben Sanders only. 

Alexander Burrell. 



184 FORMS OF DOCUMENTS. 

He can diminish his own liability by adding to either of these 
endorsements the words "Without recourse." 

He can increase his ow t ii liability by adding words which obviate 
the necessity of demand and notice ; as, thus — 
Alexander Burrell. 
Demand and notice waived. 

If he holds it until nearly due, and then sends it to a distance 
to be collected, he should endorse it — 

Alexander Burrell. 
{For collection^) 



UNDERTAKING OF GUARANTY. 

Ill Consideration of credit now to be given to Thomas Iy. Up- 
dike by Valentine Watkins, upon the purchase of one team of two 
horses, at the agreed price of one hundred and fifty dollars, I here- 
by guarantee the payment of the said price to said Watkins. 

Andrew Beaumont. 
Reading, Pa., May 29, 1894. 

(A guaranty in this form covers merely the particular purchase in ques- 
tion, and is said to be li??iited. If Mr. Watkins proposed to give Mr. 
Updike a general credit to the extent of $150, on condition of his finding a 
guarantor, the guaranty thus given would cover successive purchases up to 
that amount, and would be called a contimiing guaranty ; and the form 
of it might be as follows :) — 

111 Consideration of credit now to be given to Thomas L. Up- 
dike by Valentine Watkins, I guarantee the payment of such pur- 
chases as said Updike may make from said Watkins, to the amount 
of One Hundred and Fifty Dollars. 

Andrew Bkaumont. 
Reading, Pa., May 29, 1894. 



FORMS OF DOCUMENTS. 185 

SHORT LEASE- 

This Agreement, made in duplicate the first day of May, A. D. 
1894, between Cyrus Delano and Erasmus French, both of the City 
of Lexington and State of Kentucky, 

Witnessetli : The said Delano leases to the said French, for the 
period of eighteen months from the date hereof, the brick dwelling- 
house known as No. 153 Jackson Street, in said city, with the ap- 
purtenances, for which the said French is to pay to the said Delano 
One Hundred and Seventy-Five Dollars per quarter, the first pay- 
ment falling due on the first day of August next. And it is hereby 
agreed that said French shall not underlet or assign his term or 
any part thereof, and shall deliver possession of the premises at 
the end of the said term to the said Delano, in their present good 
order and condition, reasonable wear and tear excepted, and shall 
not be liable for rent in case of fire or other destruction of the prem- 
ises occurring without his fault. 

In Witness Whereof, the said parties have set their hands here- 
to, at the place aforesaid, the first day of May, A. D. 1894. 

Cyrus Delano, 
Erasmus French. 

(This lease, like several documents already mentioned, may be sealed 
and witnessed, though that is not necessary. The provision about not 
"underletting" or "assigning" is to prevent the house from going into the 
hands of a new tenant, whom the landlord might not choose to accept. 
The clause can be left out, or modified by the words "without the consent 
of said Delano." The provision concerning fire is important, for the ten- 
ant's protection.) 

MORTGAGE OF REAL ESTATE. 

This Indenture, made the twentieth day of September, A. D. 
1893, between Gregory Hastings and Isaac Jennings, both of the 
City of Milwaukee and State of Wisconsin, 



186 FORMS OF DOCUMENTS. 

Witnesseth, For the consideration hereinafter expressed, the 
said George Hastings doth give, grant, bargain, SELL and 
convey nnto the said Isaac Jennings Lot number five (5), in Block 
number three hundred and eighty (380), of said city, together with 
the two-st ory dwelling house thereon standing, and all the appur- 
tenances thereof: 

To Have and to Hold unto the said Isaac Jennings and his heirs 
forever. 

This Conveyance is intended as a mortgage to secure the pay- 
ment of a certain promissory note whereof the following is a copy. 

$2000.00 Milwaukee, Wisconsin, Sept. 20, 1893. 

One year after date hereof, I promise to pay to Isaac Jennings* 
or order, Two Thousand Dollars in Gold. 

Gregory Hastings. 

In witness whereof, the said mortgagor hath hereto set his 
hand and seal on the day and at the place aforesaid. 

Gregory Hastings, [seal] 

Executed in the presence of us as "" 
witnesses : 

Karl I/Inck, 
Miles Nevitt. 

(While this short form is sufficient for ordinary purposes, the mode of 
draughting mortgages differs considerably in different States. A mortgage 
is usually given to secure a note or a bond, or a series of notes or bonds; 
and the security is said to be "collateral" to the indebtedness. A clause 
is frequently introduced, requiring the mortgagor to keep the property in- 
sured for the mortgagee's protection. Printed forms of deeds and mort- 
gages can be had in every State of the Union. Although, as a rule, they 
are prepared with some degree of care, yet the person who takes a mort- 
gage as security for any considerable amount should see that the instru- 
ment is drawn up by a lawyer on whom he can rely. The same remark 
applies to deeds of conveyance, articles of partnership, and other docu- 
ments of importance. There is a truer economy in obtaining the benefit of 
advice and experience, than in taking risks. 



FORMS OF DOCUMENTS. 187 

A mortgage must be acknowledged before a notary public or other 
officer empowered to take acknowledgments. If the mortgagor is mar- 
ried, his wife must convey with him, or else (see Chapter XV) her dower 
right w T ill be unaffected by the mortgage. In the form given above, it is 
assumed that Gregory Hastings is a single man.) 



PROMISSORY NOTE. 

The note just recited in the mortgage executed by Gregory 
Hastings furnishes our first example. The note might have been 
made payable to " Isaac Jennings, or bearer," and would be equally 
negotiable in that form. For the sake of greater safety (see re- 
marks under title "Check"), commercial paper should be made 
payable to order. 

A promissory note made by two or more persons together may 
be "joint," or "joint and several." When it reads "We promise to 
pay," the persons signing it agree to unite in making payment; 
and they must be sued together, if an action on the note is necessary. 

In the following note, the signers not only agree to unite in 
making payment, but also undertake that each of them by him- 
self will pay the amount when due, or rather that the holder may 
apply for payment to whichever of them he likes, apart from the 
other. 

$1200.00 Ralkigh, N. C, Sept. 6th, 1894. 

Six months after date, we jointly and severally promise to pay 
to the order of Oliver P. Ouartley Twelve Hundred Dollars. 

RoswKi.iv ShipTon. 

Thomas Uhmr. 

$60000 Portland, Oregon, January 1, 1894. 

On or before the first day of January, 1895, I promise to pay to 
the order of Robert Sinclair Six Hundred Dollars, with interest 
from date until paid at the rate of ten per cent per annum. 

Theodore; Ui^man. 



188 FORMS OF DOCUMENTS. 

(Here the maker has the privilege of paying before the due date, and 
by so doing he can stop the running of interest. 



SATISFACTION OF MORTGAGE). 



Know all Men hy these Presents, that I, Gregory Hawkins, of 
Seattle, in the State of Washington, being the mortgagee in a cer- 
tain mortgage for the sum of two thousand dollars ($2000), made 
by Isaac Jewett, on the 3d day of September A. D. 1894, and re- 
corded in book 14 at page 67 of the records of mortgages of Lewis 
county, in said State, covering the following described real prop- 
erty, to wit: the south half of block nine (9), in the city of Che- 
halis, and county of Lewis aforesaid, hereby certify that the said 
mortgage, and the indebtedness secured by it, are fully satisfied 
and discharged. 

Witness my hand and seal, in the city of Seattle, this ninth day 
of December A. D 1896. 

Gregory Hawkins, [seal] 
Executed in presence of 
Lewis Morris. 
Nathan Osgood. 



State of Washington, \ 

County of j bb ' 

Before me, a Notary Public in and for the State of Washington, 
this ninth day of December A. D. 1896, personally appeared 
Gregory Hawkins, who is known to me to be the individual who 
executed the foregoing satisfaction of mortgage, and acknowl- 
edged to me that he executed the same freely and voluntarily. 
Witness my hand and notarial seal on the day and in the county 
in this certificate first mentioned. 

Paul Rogers, [seal] 
A Notary Public in and for the State of Washington. 



INDEX. 



Acceptance 64 

Accommodation Paper 68, 69 

Account Stated 142 

Acknowledgment 138 

Act of God . . ' ... 39 

Administrator 21 

Agreements Chapter I 

Alterations 85, 86, 97 

Arbitration 144 

Assigns 21 

Attachment 27, 28, 102 

Auction 9 

Award . . . . . 145 

Bailment 145 

Bank Checks . Chapter X 

Bank Notes 90 

Bargain, when complete 7, 10 

Bill of Exchange Chapter VI to IX 

Bill of Lading 55, 89 

Bill of Sale 141 

Boarding House 146 

Bonds Chapter II 

Bond-holder 132 

Bought and Sold Notes 147, 148 

Brokers 147 

By-laws 129 

Capital Stock 126 

Cashier 95, 96 

Certainty of Expression 15, 62, 63 

Certificate of Deposit 90 

Certified Check 94, 95, 96 

Charter 125, 126 



190 INDEX. 

Chattels, what are ; . 140, 141 

Chattel Mortgages 140 

Checks Chapter X 

Circular Notes .... - . . 152 

Clerk, agreement by ,.'..'..' 12 

Commission Merchant 147 

Common Carrier , 38, 39 

Compromises 149 

Consideration . ....... 8, 67 

Contracts Chapter I 

Conveyances . . Chapter XV 

Corporations Chapter XIV 

Coupon Bonds 87, 88 

Curtesy • . 137 

Custom of Trade 16 

Damages . . 35, 36 

Days of Grace 72, 91 

Deeds Chapter XV 

Del credere Commission 148 

Demand ....... 76 to 79 

Directors 128 

Discounting 150 

Dissolution of Corporation 133 

Dissolution of Partnership 117 

Dormant Partner ill 

Dower 137 

Draft 57 

Drawer and Drawee 64 

Drawer's liability 74 

Duplicate, execution in 17 

Endorsement 59, 72 

Endorser's liability 71, 72 

Executions 102 

Executor 21 

Exemptions .... 102, 103 



INDEX. 191 

Factor 147 

Forged Check 96, 97 

Free from Incumbrances 136 

Garnishment 106, 107, 115 

Good-will 118 

Guaranty 100 

Hand Stamps, use of 65 , 66 

Incumbrances 137 

Infringement 122 

Insurance Chapter V 

Insurance Agent 50 

Interest on Note 69, 70 

Judgment-creditor 104 

Legal Tender 98 

Letter of Credit. . 151 

Liens 104, 105, 106 

Limitations 100, 101 

Limited Partnership 117, 118 

Loan 145 

Lost Bill or Note 77, 78 

Mail, offers by 10 

Maker's liability ; . . 75 

Married Women 11,12 

Maturity 72 

Mechanic's Lien 45, 106 

Minors n,i3 

Mortgages 45^39 

Municipal Bonds .88 

Mutuality 7 

Negotiability 54? 61 

Negotiable Paper Chapter VI to X 

Notice to Endorser 82, 83, 84 

Offers by mail 10 

Partnership Chapter XII, XIII 

Payment by Check 98, 99 



192 INDEX. 

Policy and Premium 44 

Post-dated Check 92 

Power of Attorney ■ 152 

Premium, payment of 50, 51 

Presentment 76 

Promissory Notes . . Chapter VI to IX 

Protest ■ ... 8a, 81 

Quitclaim deed 136 

Raised Check .. - • • 97 

Ratification 144 

Receiver 22 

Recognizance 24 

Recording of deeds .... 139 

Retiring Partner 116 

Sale of Merchandise Chapter III, IV 

Sample, Sale by * • - 33 

Satisfaction guaranteed 32 

Seals, use of . . 17 

Signature of name 64, 65, 66 

Stockholder 132 

Stoppage in transitu ... 31 •> 3% 

Sunday laws 60 

Surety * 22, 23 

Teller ... 95, 96 

Trade-Marks 1 18 to 123 

Valuation 46, 47 

Value received 59, 68 

Warehouse receipts . . 55 , 90 

Warehouseman 40 

Warranty Deed 136 

Warranty of Quality 30, 31, 32 

Warranty of Title 29, 30 

Warranty given by insured 48 

Writing, when desirable 15 

Writing, when necesr.ary .12 



LIBRARY OF CONGRESS 



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